Economy

Mutual Funds Can Create Wealth, Fund Critical Infrastructure

Published

6 years ago

05/12/2018

By FSDH Research

FSDH Research’s analysis shows that mutual fund investment can create wealth for investors and that funds pooled together can be used to finance critical infrastructure and expand business operations. Investors in mutual funds do not necessarily need to have expert knowledge about investment management to enable them to create wealth, as there are investment management experts whose primary role is to grow the value of investments under their management.

Money that is pooled together through mutual funds can be channelled to address critical infrastructure either directly or indirectly. This would promote the competitiveness of the economy, enabling businesses to expand operations and employ more people, and would assist government at all levels in generating more tax revenue.

FSDH Research warns, however, that mutual funds need more support than is currently available to enable potential investors to fulfil their wealth creation and developmental roles.

A mutual fund is a pool of funds brought together by a professional fund manager from several investors to invest in selected underlying securities. The underlying securities can be one or a combination of the following: stocks, fixed income securities, real estate, and commodities.

A mutual fund portfolio is structured and maintained to match different investment objectives. The type of mutual fund an individual invests in depends on their financial objectives and appetite for risk. Most mutual funds are open-ended investment schemes. This means that the fund manager can create additional units for new investors on demand.

The fund manager is also able to provide active liquidity by redeeming units from existing investors who want to sell units for cash. Through this pool of funds, an investor creates wealth over a long period of time by making the money work for him through regular saving and investment.

In addition to liquidity, mutual funds offer a range of benefits to investors including portfolio diversification and lower transaction costs. The existence of a Trustee and Custodian to a mutual fund ensures the safety of investments, as the Trustee ensures that the fund is managed in line with approved investment guidelines, and the Custodian holds the fund assets.

Mutual fund investments are affordable for low-income investors, as some funds require an initial investment of only N5,000.

The mutual fund assets in Nigeria have grown significantly in the last five years. This is an indication of the growing interest in this class of investment. Data from the Securities and Exchange Commission (SEC) on the Net Asset Value (NAV) of all registered mutual funds in Nigeria shows that the collective NAV grew by 349% between 01 November 2013 and 02 November 2018. This translates to a Compound Annual Growth Rate (CAGR) of 35% between the periods.

Despite the impressive growth rate, FSDH Research notes that there is significant room for growth in mutual fund assets as we estimate the ratio of mutual funds to the country’s Gross Domestic Product (GDP) at 0.51%.

Governments and corporates may access the required long-term funds to finance critical infrastructure and business expansion through the growth of mutual funds. With appropriate structures in place, mutual funds can also be used to revive the real estate sector, which is currently in depression. As fund managers mobilise funds and invest in Bond Funds, Real Estate Funds and Equity Funds, they are providing long-term capital for developmental purposes.

They also provide short-term working capital through investment in Money Market Funds. The growth in investable funds has positive multiplier effects on the economy.

However, FSDH Research’s findings show that Government, regulators and the operators in investment management need to give the mutual fund additional support. Government could offer tax incentives to investors who are committed to a regular investment plan in mutual funds. It should also create an enabling environment that will lead to job creation in the country in order to increase savings and investable funds. Regulators could promote innovative legislation to increase investment in mutual funds and expand investment channels to increase returns on the funds invested.

The Fund Managers Association of Nigeria (FMAN) should continue to create public awareness on the benefits of mutual funds in order to generate interest from the investing public.

Economy

Secure Electronic Technology Seeks Approval to Merge Every Four Shares Into One

Published

11 hours ago

13/03/2025

Aduragbemi Omiyale

By Aduragbemi Omiyale

Secure Electronic Technology (SET) Plc is planning to reconstruct its shares at the Nigerian Exchange (NGX) Limited by merging four stocks into one.

However, this exercise is subject to the approval of shareholders of the company and the board is proposing an Extraordinary General Meeting (EGM) to be held on or before April 17, 2025.

Business Post reports that the decision to reconstruct the shares of the organisation was reached at the board meeting of the firm on Friday, MArch 7, 2025.

In a notice to the stock exchange, SET Plc said it was agreed that the proposed share reconstruction and recapitalisation of the company shall be by way of one or a combination of the following; an offer for subscription, rights offering or private placement, upon terms agreed by both parties under the definitive agreement.

It further said, “The issued and share capital of the company be reduced from N2,815,770,000, represented by 1,407,885,000 ordinary shares of 50 Kobo each, subject to the approval of the Federal High Court, Securities and Exchange Commission (SEC), and relevant regulatory authorities.”

“This restructuring share result in the cancellation of 4,223,655,000 units of shares and the portion of the share capital cancelled, being valued at N2,111,827,500 be transferred to a special reconstruction reserve,” it noted.

The disclosure also said, “There shall be a proportional upward adjustment in the share price of SET on the NGX to be reflected after the conversion, so that the value of one converted share shall be equal to the market price of four pre-reconstruction shares, and at the end of the reconstruction, SET market capitalisation and each shareholder’s percentage holding shall remain unchanged.”

The company emphasised that it would “consolidate its issued shares at a basis of 1 for 4 ratio, meaning every four shares of SET Plc currently held by a shareholder shall be converted to one share and shareholdings that result in fractional shares post-reconstruction shall be rounded up to the nearest whole number.”

It was disclosed that this exercise was suggested by Gamma Civic Limited, a part of Gamma Group, a company listed on the Mauritius Stock Exchange and represented by Cruzan Investment Limited, a company incorporated in Nigerian under the Companies and Allied Matters Act 2020.

Economy

FrieslandCampina Wamco Weakens NASD OTC Exchange by 0.06%

Published

14 hours ago

13/03/2025

Adedapo Adesanya

By Adedapo Adesanya

FrieslandCampina Wamco Nigeria Plc brought down the NASD Over-the-Counter (OTC) Securities Exchange by 0.06 per cent on Wednesday, March 12.

Business Post reports that the share price of FrieslandCampina Wamco Nigeria Plc slumped by N1.26 during the session to N37.45 per unit from the preceding day’s N38.71 per unit.

However, Geo-Fluids Plc gained 27 Kobo to trade at N2.95 per share versus Tuesday’s closing price of N2.68 per unit, and First Trust Microfinance Bank Plc appreciated by 3 Kobo to close at 56 Kobo per share, in contrast to the previous day’s rate of 53 Kobo per share.

When the platform ended trading activities yesterday, its value went down by N1.17 billion to settle at N1.955 trillion compared with the preceding day’s N1.956 trillion and the NASD Unlisted Security Index (NSI) decreased by 2.03 points to close at 3,385.50 points, in contrast to the previous trading day’s 3,387.53 points.

The volume of securities traded at the bourse dropped by 36.3 per cent to 298,845 units from the 469,185 units published on Tuesday, the value of securities decreased by 4.8 per cent to N10.4 million from the N10.9 million quoted at the preceding session, and the number number of deals moderated by 34.2 per cent to 25 deals from 38 deals.

At the close of business, Impresit Bakolori Plc was the most active stock by value (year-to-date) with 533.9 million units worth N520.9 million, followed by FrieslandCampina Wamco Nigeria Plc with 12.5 million units valued at N484.0 million, and Afriland Properties Plc with 17.2 million units sold for N352.8 million.

Also, Impresit Bakolori Plc was the most active stock by volume (year-to-date) with 533.9 million units worth N520.9 million, trailed by Industrial and General Insurance (IGI) Plc with 69.9 million units sold for N23.7 million, and Afriland Properties Plc with 17.2 million units valued at N352.8 million.

Economy

Reps Approve Conditions to Revoke Licences of Insurance Companies

Published

14 hours ago

13/03/2025

Aduragbemi Omiyale

By Aduragbemi Omiyale

The House of Representatives has passed Nigeria Insurance Industry Reform Act, 2024, repealing Act, Cap 117, Laws of the Federation of Nigeria, 2004; the Marine Insurance Act, Cap M3, Laws of the Federation of Nigeria, 2004; The Motor Vehicle (Third Party) Insurance Act, Cap M22, Laws of the Federation of Nigeria, 2004; the National Insurance Corporation of Nigeria Act, Laws of the Federation of Nigeria, 2004 and the Nigerian Insurance Reinsurance Corporation Act, Cap N131, Laws of the Federation of Nigeria, 2004.

At the plenary on Wednesday, the green chamber of the National Assembly approved some conditions the operating licence of an insurance company can be revoked by the National Insurance Commission (NAICOM).

The new piece of legislature, which provides for a comprehensive legal and regulatory framework for insurance business in Nigeria, was enacted yesterday after the consideration of the Senate bill.

During the presentation by House Leader, Mr Julius Ihonvbere, yesterday, for a clause-by-clause consideration, it was agreed that NAICOM can withdraw the licence of an insurer or reinsurer if it is not conducting insurance business in accordance with sound insurance principles.

In addition, this action can be carried out if the licence holder has “failed to satisfy the capital or solvency requirement as prescribed by the commission and has ceased to carry on the business of insurance and the primary purpose for which it was registered for at least one year in Nigeria.”

The lower chamber of the parliament also concurred with the Senate that for obtaining an operating licence, “An application for licensing as an insurer shall be made to the commission in the prescribed form and accompanied by such other documents or information as the commission may from time to time require.

“The commission shall publish and make available to the general public a service charter which shall provide for products and services of the commission and the complete list of requirements to obtain the products and services.”

However, no person or organisation is allowed to “commence or carry out insurance, reinsurance or related business in Nigeria unless licensed by the commission as an insurer or a reinsurer under this bill.”

NAICOM was given the power to “regulate the insurance industry [in Nigeria] in order to develop the insurance sector and to protect the interest of policyholders, prospective policyholders and other stakeholders under insurance policies in ways that are consistent with the continued development of a viable, competitive and innovative insurance industry.”