Chukwuma Aguwa: Wanna Get Into the Basics of Mutual Funds? Read This!

Mutual fund is an instrument where funds are pulled from people and organizations in order to be invested in the money market.

Mutual fund is a pull of funds from the financial market. Some mutual funds place their interest in the capital market and real estate. With the investment at mutual fund, you can invest in the capital market, financial market or real estate.

Why do mutual funds fluctuate?

A lot of people keep asking why mutual funds fluctuate like every other investments in Nigeria and across the globe. The answer is simple: factors like political instability, insurgency and epidemics are some of the things that can affect the economy of a state, and investment in a particular sector of the economy.

However, mutual funds fluctuate because investments are made in various instruments and these instruments include treasury bills, bonds etc. Hence, the demand of one instrument of investment over the other affects the value for the other.

What are the challenges of mutual funds?

The integrity of the fund manager

This has to do with how knowledgeable the fund manager is about mutual funds and how it works in the money market. How knowledgeable your fund manager is in the money market and financial market affects your mutual funds. A fund manager, who is knowledgeable will be able to study the financial market, the money market, how it works. This will influence the advice they give to you on when to invest, how to invest and how long to invest. That’s because they have stayed long enough to understand the money market and to know how it works.

Working with a fund manager who is not so knowledgeable about the money market puts your mutual funds at a big risk. Fund managers are more like investment bankers. Investment bankers are more like financial advisors, hence, they are saddled with the responsibility to guide you, assist you and advice you on the basic things you need to know about money market – how mutual funds work, the rate and the performance of your mutual funds to be precise. Working with a fund manager that is not knowledgeable will jeopardize the investment of his/her client and this might lead to a huge loss of money due to little experience, exposure and expertise.

Mutual funds are not fixed income

Mutual funds are not fixed income and it is hard to determine your earning. Some parts of your investments are invested into the capital market so the performance of the company determines the rate you get, not the amount you invest. If the company’s performance is great, you will enjoy your rate but if the performance of the company is low, it will affect the rate. The performance of companies affect the mutual funds. Mutual funds fluctuate because of the instruments of investment.

A mutual fund manager does not necessarily need to be a banker neither does he need to work with a financial institution. The mutual fund manager can be an investment banker or someone who is so knowledgeable with mutual funds. For example, ARM has a mutual fund called ARM Money Market Firm.

Also, you don’t necessarily need to open an account with a particular bank in order to own a mutual fund. For example, at Stanbic IBTC, you don’t need to be a customer in order to own a mutual fund. You can always open a mutual funds account whenever you want to.

The requirements include:

• A valid means of identification (which could be your international passport, your driver’s license or your national identity card/NIN),
• Your Bank Verification Number (BVN)
• A Passport Photograph.

Once this is done, an e-account will be created. This e-account enables you to track your account and fund it at any point, without going to the bank. With this e-account, you can always fund your account via bank deposit, cheque, mobile banking, USSD or via Atm. In funding, you can always decide to increase your deposit at any point in time and you can always track your account with your e-account.

This varies from one financial institution to another. For some other institutions, you get your unique code as soon as your requirements are ready. With your unique code, you can transfer some money to the bank account of your mutual fund manager, who will then transfer the money to your account. You can also decide to transfer the money to your account, directly.