What is a mutual fund
A mutual fund collects money from many people and invests it together in a set of assets. Each investor owns units of the fund rather than the underlying assets directly. This page explains the basic parts of a mutual fund and the roles behind it.
How a mutual fund works
A mutual fund pools cash from many savers and puts it into a defined mix of assets, such as bonds, shares or cash instruments. The pool is divided into units. When you put money in, you receive units in return, and when you take money out, those units are redeemed.
The value of one unit is the net asset value. It is worked out by taking the total value of the fund's assets, subtracting its liabilities, and dividing by the number of units in issue. The net asset value moves as the assets held by the fund change in value.
Most funds sold to everyday savers are open-end funds. That means the fund can issue new units when more people invest and cancel units when people redeem, so the number of units is not fixed.
The people behind the fund
An asset manager runs the fund. The manager decides what to buy and sell within the fund's stated objective and rules, and handles the day-to-day decisions. The manager does not hold the assets personally.
A custodian holds the fund's assets separately from the manager's own assets. This separation is a safeguard: if the manager has problems, the fund's holdings sit with the custodian and are not mixed with the manager's money.
A trustee oversees the fund on behalf of unit holders. The trustee checks that the manager follows the fund's rules and acts in the interest of investors, and it can step in when something goes wrong.
Costs and why regulation matters
Funds charge for running the portfolio. Some costs are deducted from the fund on an ongoing basis, which reduces the net asset value over time. Other charges may apply when you buy or sell units, and these are often called loads.
Fees differ from fund to fund, so it helps to read the fund's documents before investing and to understand what is charged and when. A cost that looks small on its own can matter over a long holding period.
The regulator sets rules for how funds are set up, valued, reported and sold. It also requires disclosure of fees and risks. This matters because your money is handled by others, and clear rules and supervision give you a basis for checking that the fund is run as promised.
A common mistake is choosing a fund only by its past performance and ignoring the fees, the fund's objective and how it fits your own plans. Past results do not tell you what will happen next.
How to buy units
Three ways in. All three end with units registered in your name at the fund’s registrar; none of them changes what the fund holds.
Directly from the manager
Open an investor account on the manager’s site or at its office, and pay into the fund’s collection account.
You’ll neednational ID, a bank account in your name
Through a bank branch
Banks that distribute funds take the application at the branch and pass it to the manager. The fund and its price are the same.
You’ll needan account at that bank
Through an investment app
Licensed distribution apps show several managers’ funds in one place. Check that the app is on the regulator’s list of distributors.
You’ll needa phone number and ID for verification
The steps
Pick a category first
Money market, income, equity or mixed: the category decides how much the price can move, more than the fund name does.
Read the offering document
Fees, minimum investment, cut-off time and how redemptions are paid are in it. Our fund facts link to it.
Complete identity checks
Every route asks for the same know-your-customer checks before the first purchase.
You’ll needID, proof of address, tax number where it applies
Place the order before the cut-off
Orders received before the daily cut-off get that day’s NAV; later ones get the next.
Keep the confirmation
The registrar sends a confirmation with the number of units and the NAV they were issued at. It is your record of ownership.
Before you pay, check
Tax on fund income
How income from a fund or a treasury bill is taxed depends on the instrument and on the current rules. Read the current rules on the tax authority's site; we do not reprint any rate.
Sources 1
Every figure on this page points to one of these. The date is the day we read the source.
- 1Central bankMonetary policy committee decisions, Central Bank of Nigeriawww.cbn.gov.ngmonetary policy rate