collective investment schemes in Nigeria. types

1. Presentation by Nwude C. E. (Mrs)
August 2015

2. Outline Introduction
 Types of CIS by structure
 Funds sub groups
 Unit Trust Funds
 Specialised Funds
 Alternative Investment Funds
 Parties to Collective Investment Schemes (CIS)
 How to Invest in Collective Investment Schemes (CIS)
 Growth Trend of CIS between 2011 – March 2015
 Benefits of Investing through CIS
 Risks associated with CIS
 Conclusion
Nwude C E 2

3. Introduction
 Collective Investment Schemes or Mutual Funds are
pooled money from people with less expertise, skills or
time to invest.
 Investors pool their money together and place it under
professional money manager.
 Appreciation (capital gains, interest and dividend)
arising from the investments are distributed to the
investors based on their holding in the fund.
Nwude C E 3

4. Introduction Cont’d The idea behind a Collective Investment is that by combining your
money with other individuals, you can spread it between a wider range
of companies than if you were investing alone thereby lowering your
investment risk.
 By combining funds on a larger scale from different investors, the
schemes can benefit from lower transaction costs through economies
of scale
 It helps to make participation in the capital market possible for small
investors.
Nwude C E 4

5. Introduction Cont’d
 The Investment and Securities Act (ISA) 2007, Section 153 (a) – (b) defines
collective investment schemes 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 portfolio, and in terms of
which:
 two or more investors contribute money or other assets to and hold
participatory interest in a portfolio of the scheme through shares, units or any
other form of 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 authorised by any Act.
Nwude C E 5

6. Introduction Cont’d
 Collective Investment Schemes hold cash,
near-cash, stocks, and bonds, other types of
marketable securities and in some instances
real assets.
 the exact composition of the portfolio depends
on the type of fund and their investment
objectives, which in most cases determine the
asset allocation of the fund.
Nwude C E 6

7. Types of Funds by structure
Descriptively there are two broad senses in which
collective investment schemes can be structured;
 Closed-end Funds
 Open-end Funds
Nwude C E 7

8. Types of Funds by structure Cont’d Closed end Funds refer to publicly traded investment funds/schemes that
raises a fixed amount of capital through an initial public offering (IPO) and
is listed and traded like equity on a stock exchange.
 In other words you cannot buy the shares directly from the Fund except at
inception (IPO) and the fund would not buy the shares back from you
 A typical example of a closed-end fund is the Exchange Traded fund.
Nwude C E 8

9. Types of Funds by structure Cont’d
 Open End Funds on the other hand, issue any
amount of units/shares whenever they are needed.
 The Fund Manager is at liberty to create new shares
to meet demand and the investors can sell back their
investment when they need money; as a result the
number of shares fluctuates as investors purchase or
redeem.
 Open end Funds can issue and redeem shares at any
time
Nwude C E 9

10. Funds Sub-group
Nigerian law & regulation provides for CIS set up as;
 Unit Trust Schemes, including Real Estate
Investment Schemes (REITs)
 Specialised Funds e.g. Exchange Traded or Indexed
Funds (ETFs)
 Alternative Investment Funds:- Venture Capital,
Private Equity, and Infrastructure Funds.
Nwude C E 10

11. Funds Sub-group Cont’d
 Unit Trust Schemes
There are as many types of Unit Trust Schemes
as there are investors with varied investment
appetites. These fund types are unique in terms
of stated objectives, investment policies and
asset allocation.
Nwude C E 11

12. Funds Sub-group Cont’d
Unit Trust Schemes
There are several types of unit trust schemes;
 Equity Fund
 Money market Fund
 Growth Fund
 Bond Fund
 Balanced/Mixed Fund
 Ethical Funds
 Umbrella Funds
 Real Estate Investment Schemes (REITs)
 Etc.
Nwude C E 12

13. Funds Sub group Cont’d
– Unit Trust Schemes
 Equity Funds, otherwise known as stock funds,
invest majority of their assets in common stocks
of listed company.
 The objective of an equity fund is long-term
growth through capital appreciation.
 Often grow faster than money market or fixed
income fund and comes with a higher risk of
losing money.
Nwude C E 13

14. Funds Sub group Cont’d
– Unit Trust Schemes
 Money Market Funds are open-end Collective
Investment Schemes that invest in short-term
securities such as Treasury Bills, Commercial
Papers of companies, Certificate of Deposit etc.
They help small investors to invest in securities
that ordinarily would be out of their reach. This
type of fund invest in low risk securities and pay
dividends that reflect short term interest rates
Nwude C E 14

15. Funds Sub group Cont’d
– Unit Trust Schemes
 Growth Funds invest in common stocks of more
stable firms but emphasise capital appreciation.
Included in this class are those referred to as
aggressive growth funds as well as those
concentrating on more stable and predictable
growth.
 Growth funds are more volatile than other types of
funds, so it is important that a prospective investor
examines carefully the fund’s prospectus and
current portfolio profile.
Nwude C E 15

16. Funds Sub group Cont’d
Unit Trust Schemes
 Bond Funds are schemes that invest in bonds and
other debt securities. Income-oriented investors are
usually attracted to bond funds because bonds typify
a contractual obligation on the part of the issuer to the
bondholder that offer a certain return. Historically
returns from bonds are lower than those from stocks.
 Investments in bond funds include government,
corporate, municipal, convertible bonds and
sometimes debt securities like mortgage-backed
securities.
Nwude C E 16

17. Funds Sub group Cont’d
– Unit Trust Schemes
 Balanced/Mixed Funds also known as hybrid funds
are a mix of common stocks, preferred stocks,
bonds and short-term fixed income securities that
offer both income and capital appreciation while
refraining from too much risk.
 Helps prospective investors to achieve both growth
and income objective by investing in stocks for
growth and bond for income.
Nwude C E 17

18. Funds Sub group Cont’d
Unit Trust Schemes
 Ethical Funds invest in schemes of public quoted
companies that conduct their business operations in
a socially, sometimes religiously acceptable manner.
 A typical example is an Islamic Fund which will tend
to invest only in companies that are in compliance
with Shari‘a principles/norms
Nwude C E 18

19. Funds Sub group Cont’d
– Unit Trust Schemes
 Umbrella Fund is a type of Collective Investment
Scheme with sub-funds, each with its discrete pool
of assets and liabilities.
 It typically exists as a single legal entity and
enables investors to move from one sub-fund to
another.
Nwude C E 19

20. Funds Sub group Cont’d
– Unit Trust Schemes
 Real Estate Investment Trust (REIT) combines the
capital of many investors to acquire or provide
financing for income producing real estate such as
housing, shopping centres, offices, hotels and any
other form of income-producing commercial real
estate.
 It offers investors an opportunity to be exposed to
the commercial real estate market without the hassle
involved.
Nwude C E 20

21. Funds Sub group Cont’d
– Unit Trust Schemes
 a real estate investment trust pools investors’ funds to
buy shares in real estate assets held through a
corporate partnership. REIT helps small investors to
buy into commercial properties.
 Some of the requirements for a REIT is that 75% of its
assets must be invested in real estate and the REIT
must payout at least 90% of its income in the form of
dividends to investors.
Nwude C E 21

22. Funds Sub group Cont’d
– Specialised Funds
 Exchange Traded Funds (ETFs) are Index-based funds
that imitate a market index.
 Like Unit Trust Schemes, ETFs represent a partial
ownership in an underlying portfolio of securities put
together to achieve a specified investment objective.
 In Nigeria we have the following ETFs; Vetiva Griffin 30
ETF, Lotus Halal ETF, and Stanbic IBTC ETF 30.
Nwude C E 22

23. Fund sub group Cont’d
Alternative Investment Funds
 Included in this sub group are Private Equity
Funds, Venture Capital Funds and Infrastructure
Funds.
 Investments in these segments are not as liquid
as in the regular Unit Trust Scheme also
applicable laws regulating them differs just as
the types.
Nwude C E 23

24. Fund sub group Cont’d
Alternative Investment Funds
 Venture Capital funds are set up for early stage
financing of new and young companies seeking
to grow rapidly. It is defined as a profit seeking
venture by an entrepreneur, whose primary
objective is to provide fund not otherwise
available to new and growing business for the
purpose of making profit in the long term.
Nwude C E 24

25. Funds sub group Cont’d
Alternative Investment Funds
 Private Equity Funds; Players in this segment of
the market are informed or highly qualified
sophisticated investors who can commit large
sums of money for long periods of time.
 Private Equity investors bring dynamism;
innovation and help investee companies build a
more robust and sophisticated structure
 Private equity investments often demand long
holding periods to allow for a turnaround of a
distressed company or a liquidity event such as
an IPO or sale to a public company.
Nwude C E 25

26. Fund Sub group Cont’d
Alternative Investment Fund
 Infrastructure Funds allow investors to own part
of a professionally managed portfolio of
infrastructure assets, such as Toll roads,
Airports, Communications assets (such as
broadcasting towers), Materials handling
facilities (such as ports), Rail facilities and other
transport assets, Utilities such as electricity
power lines and gas pipelines, etc.
Nwude C E 26

27. Fund sub group Cont’d
Alternative Investment Fund
 Infrastructure Funds are managed by specialist
Fund Managers, who make all the investment
decisions on behalf of investors. Returns from
Infrastructure Funds have a combination of
capital growth and income. The income
generated by infrastructure assets can be
predictable, as they usually operate in
environments with low levels of competition and
high barriers to entry.
Nwude C E 27

28. Parties to Collective Investment
Schemes
Key parties
 Fund Manager
 Trustee
 Custodian
 Registrar
 Investors/unit-holders
Nwude C E 28

29. Parties to Collective Investment
Schemes Cont’d
 Fund Manager is an investment professional or
company licensed to manage a portfolio of funds
on behalf of investors. The Fund Manager is
responsible for implementing a fund's
investment objective and managing its portfolio
trading activities and is paid a fee which is a
percentage of the fund's Net Asset Value (NAV).
Nwude C E 29

30. Parties to Collective Investment
Schemes Cont’d
The Fund Manager‘s function include;
 Investment advisory services
 Selection of securities for the fund
 Publication of financial market periodicals
Nwude C E 30

31. Parties to Collective Investment
Schemes Cont’d
 Trustee; an individual or company charged with
holding the assets of a CIS on behalf of the
investors, who are beneficiaries of the trust.
Nwude C E 31

32. Parties to Collective Investment Schemes
Cont’d
The trustee’s functions include;
 Monitoring the activities of the fund manager and custodian on
behalf of and in the interest of unit holders or fund contributors
 ensuring that the custodian takes into custody all of the schemes
assets and holds it in trust for the beneficiaries in accordance
with the trust deed and custodial agreement
 ascertaining compliance with the provisions of the Trustee
Investments Act, the Investments and Securities Act and the trust
deed by the fund manager
Nwude C E 32

33. Parties to Collective Investment
Schemes Cont’d
 Custodian: a specialised financial
institution responsible for safeguarding a
fund's financial assets.
Functions of a custodian include;
 maintaining accounts of securities of a client;
 collecting the benefits, entitlement or rights
accruing to the clients in respect of securities;
Nwude C E 33

34. Parties to Collective Investment
Schemes Cont’d
Functions of a custodian cont’d
 keeping the clients informed of the actions taken or
to be taken by the issuer of securities, having a
bearing on the benefits or rights accruing to the
client;
 maintaining and reconciling records of the services
referred to above;
 Settlement of investment obligations;
 ensuring compliance with fund-specific and other
contractual obligations with clients.
Nwude C E 34

35. Parties to Collective Investment Schemes
Cont’d
 Registrar: Institution or organization that is responsible for keeping
records of unit-holders and number of units held. The Registrar
also carries out the following functions;
 maintaining the register of members of a company and unit holders
of collective investment schemes, and effecting appropriate
changes in the register;
 issuing share/debenture/bond certificates;
 returning surplus monies and monies for rejected applications;
 preparing and dispatching dividend/interest warrants;
Nwude C E 35

36. Parties to Collective Investment Schemes
Cont’d
 distributing rights circulars and public offer documents;
 dispatching annual reports, accounts and notices of meetings;
 printing and dispatching securities certificates to new investors
in respect of the transfers of existing securities;
 verifying the genuineness of share certificate and authenticating
signature on transfer instruments in respect of existing
securities;
 collecting interests on debenture and loan stocks from the issuer
for onward dispatch to debenture or stockholders where
applicable;
Nwude C E 36

37. Parties to Collective Investment
Schemes Cont’d
 Investors/Unit-Holders: Mutual Fund Glossary
defines a unit-holder as an investor who invests
money in a CIS. A unit-holder owns one or more
units in an investment trust and has specific
rights that are outlined in the Trust Deed which is
the governing document. Units in a trust are
treated like shares.
Nwude C E 37

38. Parties to Collective Investment
Schemes Cont’d
Other parties
 Issuing House
 Fund Auditors
 Authorised dealer/market maker
 Transfer agent
Nwude C E 38

39. How to Invest in Collective
Investment Schemes
As a prospective investor in CIS, your first step is to
establish;
 Your goal
 Risk tolerance/appetite
 Fees/charges
 Fund manager’s history
Nwude C E 39

40. Benefits of investing through CIS
 Professional management
 Diversification
 Affordability
 Liquidity
 Regulation
 Transparency
 Variety
 Tax
 Segregation of assets
 Investor
Nwude C E 40

41. Risks associated with CIS
Like every other investment, there are risks
associated with investing through CIS but each
fund type’s prospectus details the Funds’ risk
enabling investors to take decision.
Nwude C E 41

42. Growth Trend of CIS between
2011 – March 2015
There are fifty-five (55) registered/approved Unit
Trust Schemes (UTS) in operation in Nigeria as at
March 2015 categorised as follows;
 Equity Funds – 18
 Money Market Funds – 5
 Bond Funds – 10
 REIT – 3
 Balanced Funds – 10
 Ethical Funds – 5
 Umbrella Funds – 1
 ETFs – 3
Nwude C E 42

43. Growth Trend of CIS between
2011 – March 2015
There are also seven (7) authorised Alternative
Investment Funds
 Venture Capital Fund – 1
 Private Equity Funds – 4
 Infrastructure Funds – 2
Nwude C E 43

44. Growth Trend of CIS between
2011 – March 2015
There are also three (3) approved/registered
Foreign CIS funds distributed in Nigeria
 New Gold ETF
 IPRO African Market Leaders Fund
 Allan Gray Africa Equity Fund
Nwude C E 44

45. Growth Trend of CIS between
2011 – March 2015
UNIT TRUST SCHEMES (As at Mar 31st 2015)
TYPE NUMBER NET ASSET VALUE (NAV)
EQUITY 18 34,939,915,179.04
BALANCED 10 8,602,095,343.02
BOND 10 17,371,635,910.41
MONEY MARKET 5 66,978,501,903.11
ETHICAL 5 5,153,174,019.19
REIT 3 47,187,087,641.05
UMBRELLA 1 2,634,428,256.64
TOTAL 52 182,866,838,252.46
Nwude C E 45

46. Growth Trend of CIS between
2011 – March 2015
84.97
104.47
152.13
173.07
182.87
0
20
40
60
80
100
120
140
160
180
200
2011 2012 2013 2014 2015
BillionNaira
NET ASSET VALUE OF UNIT TRUST SCHEMES FROM 2011 –
2015
The NAV of
registered CIS
grew from
N84.97billion as at
December 2011 to
N182.87billion as
at the end of
March 2015.
Nwude C E 46

47. ConclusionCIS serve as an effective vehicle for individuals to
implement their preferred investment strategies and play
a major role in meeting critical financial needs such as
providing for retirement income, education, household
maintenance and health care.
According to the Organisation for Economic Co-
operation and Development (OECD), this role is likely to
grow in coming years, as increased responsibility is
placed on the average citizen, as opposed to
governments or companies.
Nwude C E 47

48. Conclusion Cont’dInvestment in CIS offers potential and opportunities
for retail investors to access the capital market. It
enables less sophisticated investors to participate in
the strong growth of capital markets and offer the
satisfaction of meeting some prime goals of safety,
protection, growth, generation and provision of
income.
Nwude C E 48

49. For more
information on the
rules guiding CIS in
Nigeria, please see
the amended SEC
Rules & Regulations
of 2013 and the SEC
website;
www.sec.gov.ng
Nwude C E 49