Mutual funds slow growth worries capital market players

The Collective Investment Schemes space in Nigeria has grown over the years. However, its growth potential has yet to be fully tapped. OLUWAKEMI ABIMBOLA explores stakeholders’ concerns and the way forward

A minority shareholder activist and the emeritus Chairman of the Independent Shareholders Association of Nigeria, Sunny Nwosu, after over 50 years of experience playing in the capital market held that Collective Investment Schemes were not his playing turf as he could determine for himself which stocks were worth his while and which were not.

However, not every investor in the capital market has the benefit of half a century of experience to ride on, is interested in studying the intricacies of stock movement or has the time required to manage his or her portfolio.

This is where the Collective Investment Schemes, popularly called mutual funds come in.


The Investments and Securities Act No. 29 of 2007 (Section 153) defines a Collective Investment Scheme as: “A scheme in whatever form, including an open-ended investment company, in pursuance of which members of the public are invited or permitted to invest money or other assets in a portfolio, and in terms of which: two or more investors contribute money or other assets to and hold a participatory interest; the investors share the risk and benefit of investment in proportion to their participatory interest in a portfolio of a scheme or on any other basis determined in the deed, but not a collective investment scheme authorised by any other Act.”

Some of the mutual funds include unit trusts, venture capital funds, open-ended investment companies, real estate investment schemes and specialised funds.

The Director General of the Securities and Exchange Commission, Lamido Yuguda, said the amount of Collective Investment Scheme funds held in custody had hit N2.1tn as of the end of October 2023 from N1.1tn at the beginning of 2020.

Yuguda said this at the opening of a two-day Journalist Academy organised by the Nigerian Capital Market Institute last November.

On the trading floor of the Nigerian Exchange in February, Yuguda urged investors to enter the capital market through mutual funds.

He said, “We are doing everything that we can to get regulations that give confidence to both domestic and foreign investors. For example, we have the policy on custody of all CIS products in our market, whether bilateral or public and we have seen the CIS sector responding positively to this development.

“The assets under management are growing and investors are better advised to invest through the CIS because they have experienced portfolio managers who are best equipped to manage their investments.”

Stakeholders at the United Capital Asset Management Investment Forum highlighted collaboration among players as a way to harvest the potential in the sector alongside strategic partnership, education, regulation, transparency, technology and awareness.

The forum themed ‘Deepening financial inclusion through participation in collective investment schemes: a collaborative approach’ was designed to foster a more inclusive financial landscape by democratising access to the capital market through mutual funds.

Speaking at the event, the Managing Director/Chief Executive Officer of United Capital Asset Management Limited, Odiri Oginni, said the collaboration would address the challenges of financial inclusion, particularly within the CIS industry, which had yet to fully explore collaborative opportunities.

“The solution that I believe is critical to solving this problem is collaboration, and collaboration is something we have not explored in the CIS industry,” she said.

According to data from Enhancing Financial Innovation and Access, financial inclusion in Nigeria grew from 64 per cent in 2020 to 74 per cent in 2023.

Despite the progress, approximately one in four Nigerian adults still lack access to formal financial services, underscoring the importance of ongoing efforts to promote inclusion.

Africa’s biggest economy aims to increase its financial inclusion rate to 95 per cent in 2024.

Oginni, said the barriers to collective investment schemes and inclusion exist through a lack of trust, awareness, issues of returns and performance (volatility and variables of returns).

She noted that less than two per cent of Nigerians with bank accounts own a CIS account, adding that the country should begin to look at bridging the gap between owning a bank account and a CIS account.

Oginni called on CIS providers to leverage strategic partnerships to reach underserved communities.

A United Capital presentation showed that the growth of CIS in Nigeria had been substantial, with assets under management increasing from N73.8bn to N2.2tn over the past 12 years.

Similarly, the number of registered funds has risen from 44 to 144, demonstrating a significant increase in market participation.

However, there remains a gap in CIS adoption, with only about 1.7 per cent of banked adults in Nigeria holding a CIS account, indicating room for further expansion.

Acting Managing Director of Nigerian Exchange Limited, Jude Chiemeka, speaking at the event pointed out that collaboration among stakeholders would boost the sector in a significant way as it allows for the creation of products tailored to meet the needs of potential investors in the scheme.

He said, “We need more investments than we have in the market. If you think about the population, and percentage of retail investors in our market, then such a value should be amplified because it goes beyond financial inclusion.

“We also need to think about the empowerment of our teeming youth. We need to create products.  I see it as an avenue to encourage savings and investment, a way to pull ourselves out of poverty. So, if you look at the figures, the estimated number of investors in the market is in the thousands. If you juxtapose that with the millions of people with bank accounts, there is a lot of work to be done.

“If you think about the number of people who have collective investment accounts, that is a very low number.  If you think about the fact that we have 144 and then 12 related investment types. There is a lot of room for growth. The good thing about it is that we’re starting from the very low phase.”

He reiterated the calls for collaboration in the sector as a major propeller and mooted the idea of Islamic finance as an avenue.

 “Certainly, partnerships and collaboration will do it,” Chiemeka stated.

The exchange boss noted, “One of the areas that we are looking at is Islamic finance. I think it is a very easy way is to increase financial inclusion, especially in the local market. We are also looking at ESG becoming mainstream and green bond refinancing.  There is a need to create more of these sorts of investment avenues that will help bring a whole new set of investors into the market.

“I am happy to say that we do have strong partnerships with Islamic bank, and we are working hard to ensure that the message is passed across because I think Islamic finance should help us a lot across every structure.

“Last year, the Federal Government was able to raise over N1tn by utilising the sukuk to finance the road infrastructure. If you think about the billions of dollars of financing available through green financing, there is a lot of room for growth,” he maintained.

Yuguda, who was represented at the Investment Forum by the Executive Commissioner (Operations), Dayo Obisan, revealed that CIS was a way to boost financial inclusion in the country.

He revealed that less than five per cent of Nigerian adults invest in the capital markets, indicating the ongoing need for concerted efforts to promote financial inclusion.

He noted, “It is important to note that despite all the progress made so far, less than five per cent less of Nigerian adults currently invest in the capital markets, highlighting the ongoing need for concerted efforts in this work. As noted by the IMF in 2023, financial inclusion in Nigeria has experienced significant growth as evidenced by the consistent incorporation of residents into the banking sector.

 “However, this surge in bank account ownership is predominantly attributed to the inclusion of those who have utilised the non-bank/informal financial sector despite the successes overall inclusion rates still so passed official targets, primarily due to low financial literacy.”

He added that the commission had taken steps to promote financial inclusion through investment schemes.

“In collaboration with the Fund Managers Association, we are engaged in targeted campaigns by national interest programs and technological initiatives to demystify the reach of underserved communities,” he said.

Divisional head, of business technology and digital innovation, at CSCS Plc, Tobe Nnadozie, highlighted the pivotal role of technology in facilitating easier access to financial services, reducing processing times, and enhancing trust in the financial system.

 “The seamlessness of the banking system can be replicated in the capital market. Technology can help remove the long processing time and lack of trust.

“We need to use technology to open up the space, the liquidity of the capital market is in the hands of the few who are no longer bullish, there is a need to open up for the younger ones thereby pushing trust,” Nnadozie added.

A Partner at PwC on Capital Markets and Accounting Advisory, Omobolanle Adekoya, in her presentation titled ‘The Way Forward: Bridging Access Through Mutual Funds’, stated some of the ways that the financial inclusion gap in the CIS sector could be bridged.

She asserted, “We need to look at things around the development of customised multi-asset solutions for millennials.”

She stressed the need to encourage young Nigerians to start saving from 14 and 15 years of age to enable them to grow wealth.

Meanwhile, the SEC has proposed amendments that would address the complaints of players in the Collective Investment Scheme segment of the capital market.

There have been complaints about the lack of standardised information from the administrators of Collective Investment Schemes.

In a notice on its website, the commission revealed the new amendments to its regulations titled ‘Exposure of New and Sundry Amendments to The Rules and Regulations of the Commission’.

Relating to Collective Investment Schemes, the commission had proposed amendments to Rule 450 – New Sub-Rule (9) General Rules for CIS. Some of the proposed amendments include, “The fund manager of a scheme shall provide every unitholder with an electronic investment statement within two weeks after the end of each month. a. The investment statement shall be an unaudited financial summary of the scheme’s operations comprising an abridged and concise statement of comprehensive income, a statement of financial position, a cash flow statement and a statement of changes in equity of the scheme.

“The investment statement shall disclose i. the scheme’s yield for the period and a month-on-month comparison. ii. the number of units held by the unitholder and the unit price as of the date of the statement. iii. a breakdown of inflows and outflows from the unitholder’s account including any accrued or deducted expenses, capital appreciation or depreciation and any income accruing to the account of the unitholder.”

The proposed rules will also demand that the fund manager discloses on its website the daily bid and offer prices of each scheme under its management, details of the schemes under its management, including the parties, risk profile and tax considerations of each scheme, annual total expense ratio of each scheme for the last five years, year-on-year comparison of each scheme’s yield for the last five years, including comparison with the scheme’s stated benchmark.

In addition, the fund manager of the scheme will be expected to disclose the trust deed including supplementals of each scheme, rights of the unitholders of each scheme, distribution frequency of each scheme and the audited financial accounts of each scheme for the last five years.

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