Mutual funds are one of the most popular ways to invest and build wealth. This article is designed to help you understand what they are, how they work, and things you may want to consider.
What then are mutual funds? They are a ‘pot of money’ contributed by different investors and are managed by an individual or group. Put in other words, a mutual fund is an entity that pools cash from a variety of investors for the sole purpose of investing in shares, bonds, treasury bills, and the like. All of these are referred to as ‘portfolio of investments’.
Types of Mutual Funds
1. Open-Ended Funds
An open-ended fund does not have a limit on the number of shares that can be issued by the fund. Open Funds are mostly unregulated and are not traded on the floor of the stock exchange.
2. Close-Ended Funds
As opposed to an open-ended fund, its close-ended variant has a set number of shares. They are regulated by the Securities and Exchange Commission as well as the NSE. Close-ended funds play by the rules set by the regulatory authorities. Their share price is also published daily on the pages of newspapers and can also be found on the internet.
Who Operates a Mutual Fund?
Mutual Funds are operated by professional investment firms made up of people who are money and capital market savvy. Mutual Funds in Nigeria are operated by the investment arm of banks, stock brokerage firms, investment banks and the likes.
What Makes Mutual Funds Worth It?
People who have not got the time to invest, or have not got foundational knowledge of the capital market? Mutual Funds attend to the pain points of these people.
Moreover, it gives them an opportunity to save for the future. By investing in mutual funds, you get an amazing opportunity to invest in a portfolio of rewarding instruments rather than having your money in just one basket. For example, your N250k investment in a single mutual fund can represent investment opportunities in bonds, stocks, treasury bills, and the likes.
There are many reasons to invest in mutual funds, including accessibility and diversification. On the other hand, mutual funds offer transparency and build wealth.
Before you decide on a mutual fund to invest in, figure how it fits with other investments you are engaged in.
Lastly, the internet has made things easy for you as there are ways to buy mutual funds online in Nigeria now.