Investors move to mutual funds for higher yields

Nigerian investors are switching to mutual fund for savings over bank deposits for better yields.

“If people are switching from bank deposits to money market funds for their savings, that is a good sign for the fund management industry and a good sign for savers, because money market funds tend to yield more than bank deposits,” Coronation Asset Management latest weekly report said

Nigeria’s regulated mutual funds have grown by 46.5 percent this year, a growth that exceeds the country’s rising inflation rate.

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“The total assets under management (AUM) of Nigeria’s mutual fund industry rose by 46.5 percent during the first 11 months of this year, according to data from the Securities and Exchange Commission (SEC). This signals a return to growth for the industry as savers become more aware of the value offered by funds,” the report said.

In 2021 low rates discouraged subscriptions to money market funds, now the industry is back to growth.

Most of the growth came from two types of funds, US dollar funds and money market funds.

“The growth of money market funds is significant because these form the largest portion of the industry about 39 percent of total assets under management and competes directly with Naira bank deposits for customers’ money,” it said.

The growth in money market funds is attributable to poor interest rates on bank deposits particularly at the beginning of this year, an analyst at Coronation said that recent rises in market interest rates have increased investors’ returns; the success of fund management companies in making people aware of mutual funds.

Unlike the other mutual funds, the fixed-income mutual fund performed poorly this year

“We were surprised to find that the value of fixed-income mutual funds has fallen this year. Only a part of this fall is attributable to the use of mark-to-market accounting (which only some funds use for their published data and which records price losses on bonds when interest rates go up),” it said.

They attributed the performance to the irregularity in the reporting of the fund, saying it is the very unevenness of Fixed Income fund reporting – some funds report average yields while others report mark-to-market positions – that puts people off.

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The growth in US dollar funds can be attributed partly to the effects of exchange rates, because the size of US dollar funds is recorded in naira equivalents and the naira declined from N460.82/US$1 to N790.82/US$1 between January 1 and December 1.

“The 72 percent move in the exchange rate expanded the Naira value of US dollar funds, but there was underlying growth of 32 percent to bring the growth rate over 11 months to 126 percent,” the report said.