What to consider when investing in Mutual Funds

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By Patrick Ilodianya, CEO of SFS Capital Nigeria Limited

Investment and earning from multiple streams of income have become imperative in the global community and in the Nigerian economy specifically. The economic downturn and uncertainties ravaging the African giant has made it impossible to build wealth relying on just monthly wages.

Investment in Mutual Funds have proven to be a perfect recipe for wealth creation and accumulation, given the ample of investment opportunities and flexibility it presents to the investors.

Mutual funds are investment funds that pool money from many investors to purchase securities, like stocks, bonds, money market instruments, and other assets. Interestingly, a major advantage of mutual funds is that they are operated by professional money managers who seek to assemble the right mix of funds, whilst considering the risk appetite of the investors.

Another important advantage of investing in mutual funds is that the entry level is lower cheaper compared to directly investing in the capital market. A seemingly interesting edge that mutual funds gives investors is diversification. This involves buying a mix of stocks from different industries and investments of different types in a bid to reduce the risks to the investor’s assets.

This article considers the various factors an investor needs to consider when investing in mutual funds.

·       Identify your investment goals

In any investment endeavour an investor needs to understand their investment goals, if its growth or value. This could be as simple as setting your objectives for investing, some of which could be but not limited to retirement funding, saving for a wedding, emergency fund requirements, or medical expenses. It is worth noting that these objectives will help guide the kind of investment plan or category to venture into, all of which have different level of risks.

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Risk level

There are different risks associated to mutual funds and an investor must be aware of their risk appetite in other to know which funds to consider. Understanding your risk appetite will guide the choice of funds to invest in. For example, SFS Fixed Income Fund offers investors the opportunity to invest in high yielding fixed income assets, which is a perfect option for investors with low-risk appetite.

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Time horizon

While setting investment goals and understanding the risk level is important, it is equally imperative to consider the time horizon, which is in line with the objectives or goals identified in the beginning. For example, long-term goals usually allow investors to focus on growth funds rather than value funds, which are more short time and comes with higher risks.

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Track record

It is important to consider the track record of the fund as well as the fund managers. Basically, credentials are one of the aspects considered by investors in evaluating the performance of their fund managers. This involves a consideration for their fund performance success rate, investment styles, amongst others.

The track record of fund managers often gives suggestions as to the expectations of the investors from their managers. This assessment could involve an evaluation of the fund yield, Assets Under Management (AUM), experience, and Net Asset Value (NAV) of the Asset Management Company of the fund manager.

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Expense ratio

This part is often underrated but is very important as a slightest difference in the expense ratio could impact the wealth growth of an individual significantly. Note that all funds come with some costs and fees, as the mutual funds are managed by professional individuals who analyse, do timely investments, and withdrawals from stocks and bonds to generate good returns on behalf of the fund holders.

Comfort and ease

In a growing world of technology, ease of usage are very important factors, investors should look out for before choosing any investment plan or fund manager. With the use of mobile applications growing at a rapid pace, it is important for investors to be able to buy into any mutual fund of their choice from the comfort of their homes, one which SFS Fund Mobile App provides its numerous clients.

About SFS Capital

SFS Capital Nigeria Limited (“SFS Capital”) is a leading Nigerian non-bank financial institution established in May 2011. SFS Capital is the asset management division of the SFS Group. The company is duly registered as a Portfolio/ Fund Manager and Investment Adviser with the Securities and Exchange Commission (“SEC”).

According to the company’s website, SFS Capital has assets under management and advisory in excess of 100 billion Naira, with a clientele that includes Pension Funds, institutional and high net worth individual clients, NGOs, endowment, State Reserve Funds and Federal Government Parastatal funds.

SFS Capital has considerable financial market expertise with an experienced and an award-winning management team. The company has a track record of being client-focused, acting with integrity and giving honest and reliable investment advice.