Mutual funds are collective investments that are professionally managed on behalf of various investors from whom money is pooled. They have the advantage of being professionally managed, offer diversification, and play an important role in retirement planning.
Investing in mutual funds makes it easier to invest in different sectors of the economy at a reduced or shared cost. It also makes portfolio management easier. In essence, mutual funds support economic growth by playing a part in financial intermediation.
The worldwide popularity of mutual funds
According to the Investment Company Institute, there are over 76,200 mutual funds globally with assets under management of over $30 trillion, representing over 20% of total global asset under management. Of this number, 90% is controlled by developed capital markets in the West. Unfortunately, not a lot of Nigerians are taking advantage of the beauty of mutual funds.
Analysis of mutual fund ownership is not as simple as it may sound because there are institutional and retail investors. While retail investors are those individuals that buy or sell mutual funds based on their own decisions, institutional investors are the corporate bodies that buy or sell mutual funds on behalf of an array of investors from whom they collect the money to invest. These include insurance companies, pension funds etc.
To the extent that an institutional investor who invests on behalf of the often many investors is counted as one unitholder, it may be difficult to have a better count of the number of people investing in mutual funds. Be that as it may, available information from the Security and Exchange Commission offers an approximate sneak-peek into mutual fund ownership in Nigeria.
Nigeria’s mutual fund population
Although the total net asset value of mutual funds in Nigeria stood at N1.35 trillion or $3.1 billion, according to information from the Security and Exchange Commission, as of the end of April 2021, there were a total of 457,256 unitholders in the Nigerian mutual fund industry. That shows an increase of 4,000 unitholders when compared to the 453,256 unitholders in March 2021.
Considering that Nigeria has a population of about 258 million, it implies that only about 0.23% of the population is invested in mutual funds. That speaks volumes about the penetration of mutual funds in Nigeria, the potential for growth and the task that lies ahead both for the asset management companies and the government.
When compared to pension fund investors, mutual funds seem to be nonexistent as about 9.3 million Nigerians are invested in pension funds. Understandably, the asset value of pension funds far outweighs that of mutual funds.
Comparison with other countries
Compared to other countries, mutual fund penetration among the populace in Nigeria is pathetic. According to Statistica.com, 46% of US households have mutual funds while 1.5% of Indians are invested in mutual funds.
What this means
The implication of the above is that there is huge potential for growth in Nigeria’s mutual fund industry. Therefore, the regulatory authorities and the asset management companies should come up with a yearly target of expected growth of the mutual fund population in Nigeria.
Getting 2% of Nigerians to invest in mutual funds over the next 5 years is not too audacious a goal. This they can do by increasing the campaigns about the benefits of investing in mutual funds. The ministry of education should add financial literacy or financial management as part of the curriculum in schools, even as early as the elementary or primary school level.