Mutual funds have become one of the fastest-growing investment vehicles in Nigeria’s capital market, especially for investors who want to grow wealth without the stress of managing individual stocks or tracking market volatility every day.
As of October 2025, Nigeria’s mutual fund industry has crossed the N7 trillion milestone in Assets Under Management (AUM), reflecting both investor confidence and the growing ease of digital investing.
With over 200 SEC-registered mutual funds spread across the money market, fixed income, equity, balanced, real estate, and ethical categories, the sector continues to deepen participation in the capital market.
Unlike in the past when investing felt like a luxury for a select few, the rise of fintech platforms and increased financial literacy have made it easier for ordinary Nigerians to start with as little as N1,000 and build real, long-term wealth.
Understanding how Mutual funds work
- Pooled investment structure: Mutual funds pool money from many investors and invest these funds in diversified assets such as bonds, treasury bills, equities, Eurobonds, real estate instruments, and more.
- Professional fund management: Each fund is managed by licensed professionals who research the markets, monitor performance, and make strategic decisions on behalf of investors.
- Fees and charges: Fund managers earn through fees such as:
- Management fees (1–2.5% annually)
- Trustee and administrative fees
- Performance-related fees (in select funds)
The larger the AUM, the more revenue the fund manager earns.
- Unitized structure: Investors buy units of the fund. The value of each unit is determined by the Net Asset Value (NAV), which reflects the daily or weekly performance of the underlying assets.
How mutual funds make money
Mutual funds generate returns for investors through three major sources:
- Capital gains: Profit from buying assets low and selling high.
- Interest income: Earned from treasury bills, government and corporate bonds.
- Dividends: Paid by stocks held within the portfolio.
Key metrics for evaluating mutual funds
Before selecting a mutual fund, review the following:
- Net Asset Value (NAV): This tells you the current value of one fund unit. It reflects how well the fund’s underlying assets are performing.
- Assets Under Management (AUM): Indicates the total value of investor funds being managed. A high AUM often signals stability and investor confidence.
- Yield or return: This shows how much investors have earned over a period. Key return indicators include Year-to-date (YTD) return, 1-year, 3-year, or 5-year returns, annualized performance.
- Risk profile: Some funds (like equity funds) are more volatile, while others (such as money market or fixed income funds) are more conservative.
- Expense ratio: Measures the cost of managing the fund. Lower expense ratios generally enhance returns.
- Portfolio composition: Check the mix of equities, bonds, treasury bills, Eurobonds or commercial papers.
Major components of the Mutual funds sector
Here’s what dominates the sector:
- Money Market Funds Money Market Funds remain the largest category, controlling over 40% of total AUM due to their stability and attractive yields.
- Equity Funds offer the highest long-term growth but come with higher volatility.
- Eurobond Funds have surged in popularity as investors seek USD exposure to hedge currency risk.
- Fixed Income Funds rarely see sharp declines in NAV, making them ideal for conservative investors.
- Fintech-led participation is pushing more young Nigerians into structured pool investing.
Revenue drivers of Mutual funds
- Interest income from government and corporate bonds
- Dividend income from equities
- Capital gains from securities
- Foreign exchange gains in USD-denominated funds
Profit drivers of Mutual funds
- Attractive yields in fixed-income markets
- Rising equity markets that boost NAV
- Stable FX environment for USD funds
- Steady investor inflows into CIS products
Risks associated with Mutual Funds
Mutual funds are safer than picking individual stocks, but they’re not risk-free:
- Market risk: Equity and balanced funds may lose value during market downturns.
- Interest rate risk: When rates rise, bond prices fall.
- Liquidity risk: Some assets are harder to sell quickly.
- FX risk: For USD funds, a strengthening naira could reduce returns in local currency terms.
- Managerial risk: Poor strategy decisions by fund managers can impair returns.
Valuation metrics of Mutual Funds
Mutual fund valuation relies on several key ratios and indicators like the broader equities market:
- Return on Assets (ROA): Measures how effectively invested assets generate returns.
- Return on Average Equity (ROAE): Shows how much profit the fund generates relative to shareholder equity.
- Dividend Yield: Some equity-based mutual funds pay dividends to unit holders.
- Dividend Payout Ratio: Indicates how much of the fund’s earnings are distributed to investors.
- Price-to-Earnings (P/E) Ratio: Used for funds invested heavily in equities.
While mutual funds do not trade like stocks on the NGX, these metrics help investors gauge underlying value and long-term performance.
Other factors to be considered before investing
- Your investment goal: Is it for Income? Capital preservation? Long-term growth? Dollar hedge?
- Your risk tolerance: Conservative, moderate, or aggressive?
- Time horizon:
Short-term investors (0–12 months) — Money market funds
Medium-term investors (1-3 years) — Bond or balanced funds
Long-term investors (5+ years) — Equity funds
- Manager track record: Past performance does not guarantee future results, but it shows competence.
- Fund fees: High fees can erode returns over time.
- Regulatory compliance: Only invest in SEC-registered mutual funds.
- Macroeconomic environment: Interest rates, inflation, FX movements, and stock market cycles all influence returns.
Step-by-Step guide to invest in Mutual Funds
1. Define your investment goal: Are you seeking income, capital preservation, wealth growth, or diversification?
2. Determine your risk appetite: Risk-takers may opt for equity funds; conservative investors tend toward money market or fixed income.
3. Research fund options: Compare NAV trends, historical returns, expense ratios, and fund manager track record.
4. Choose your preferred investment channel: You can invest through:
- Asset Management Companies (AMCs)
- Banks that distribute mutual funds
- Licensed stockbrokers and fund distributors
- Digital investment platforms/fintech apps
Choose a platform that offers transparency, convenience, and low fees.
5. Complete KYC requirements: Provide government-issued ID (passport, driver’s license, national ID), BVN, Proof of address (utility bill, bank statement), bank details as required by regulations.
6. Select your investment mode
- Lump sum for one-time investment and immediate exposure.
- Systematic Investment Plan (SIP) is best for building wealth gradually and reducing market timing risk.
7. Execute your purchase
- Enter your investment amount.
- Select “Buy” or “Subscribe.”
- Choose dividend payout or reinvestment.
- Make payment (bank transfer, card, or wallet).
- Receive confirmation and unit allocation based on NAV.
8. Monitor your investment: Track performance, benchmark comparison, and portfolio reports. Adjust or rebalance as needed.
9. Stay invested for the long term: Mutual funds work best when held for extended periods to ride out market volatility.
