There’s always something new and exciting coming along, which makes old things seem boring.
Digital currencies like Bitcoin made a lot of money in 2023, which makes it hard to think about safer options like bonds, treasury bills, and mutual funds.
Why take the slow road when I can make a lot of money quickly?
But as Bill Shankly said, “Form is temporary, but class is permanent.” Even though traditional investments like mutual funds may give smaller returns, they have always been reliable.
Just like an old rocking chair that never lets you down, mutual funds give you returns that may be small, but grow over time.
What exactly are mutual funds?
Imagine you need surgery for appendicitis. You have two choices: A skilled surgeon who has done many successful operations or a bad doctor who barely saves his patients. Of course, you’d choose the skilled surgeon.
Mutual funds are like having a skilled doctor for your investments. Professional investment managers run these funds, picking a variety of assets for you, based on ethics and risk levels.
These experts use a lot of research and complicated models to make decisions, so you don’t have to.
There are different types of mutual funds for different types of investors. For example, some funds follow Islamic principles so that people of the Islamic faith can invest without breaking their beliefs.
The Stanbic IBTC Imaan fund did very well, growing by 41.18% as of November 2023.
Some people like a bit of risk, and there are mutual funds that offer higher returns but come with more risk too, like ARM’s aggressive growth fund which returned 11.4%.
How did mutual funds perform in 2023?
The year 2023 was great for many investments. Since mutual funds pull together different types of assets, they also did well.
Especially those that invested in stock markets. For example, the NGX ASI index rose by 44.43%, the S&P 500 went up by 25.08%, and the NASDAQ did even better with a 45.33% increase.
Let’s look at some of the top-performing mutual funds in Nigeria for 2023:
- Stanbic IBTC absolute return fund YTD 6.86%
- Stanbic IBTC aggressive fund 49.9%
- Stanbic IBTC balanced fund 26.75%
- Stanbic IBTC bond fund 3.65%
- Stanbic IBTC conservative fund 19.84%
- Stanbic IBTC dollar fund 5.39%
- Stanbic IBTC enhanced short-term fixed income fund 7.03%
- Stanbic IBTC etf 30 35.32%
- Siaml pension etf 40 52.24%
- Stanbic IBTC ethical fund 34.03%
- ARM aggressive growth fund 11.4%
- ARM ethical fund 7.2%
- ARM Eurobond fund 1.72%
- ARM money market fund 13.01%
Source:
Stanbic IBTC fact sheet 2023,
ARM fact sheet 2023
Compounding yield on returns over time
Based on 2023 data, top mutual funds in Nigeria usually give returns of 5-15% per year.
If you invest wisely and keep your money in for a long time, your returns can grow significantly. For example, if you put N10,000,000 in a mutual fund that grows 10% each year, you would double your money in about seven and a half years.
If you started investing in the year 2000, by 2007 your investment would have grown to N20,000,000.
Are mutual funds 100% risk-free?
No, mutual funds aren’t risk-free. Their returns depend on the performance of the assets they invest in. Some funds can even end up losing money.
For example, in 2019, the Stanbic IBTC Imaan fund went down by -4.44%, and the Stanbic IBTC ethical fund fell by -7.72%.
So, there’s always some risk involved with mutual funds.
Mutual funds vs benchmark indices
Interestingly, more than 50% of mutual funds fail to outperform their benchmark indices.
This means many mutual funds do worse than simply investing directly in a market index like the NASDAQ.
Tim Morris’s book even suggests that flipping a coin might do better than complicated analysis!
In 2019, many of Stanbic IBTC’s funds were beaten by their benchmark index. For example, the SIAML Pension ETF 40 lost -18.43%, while its benchmark index lost -12.70%.
However, over time, good mutual funds tend to balance out, and careful investors are likely to see positive returns in the long run.
Mutual funds vs Treasury bills
Some people think mutual funds are the same as treasury bills, but they are not.
Treasury bills are short-term loans to the government, and they are very safe but usually offer lower returns.
Mutual funds are not loans; they invest in various assets and can give higher returns but come with more risk.
Drafting a balanced mutual fund portfolio
Why you invest can affect how you build your mutual fund portfolio. Are you looking to protect against currency changes? Or are you looking for high returns?
For example, some might want investments in dollars to hedge against Naira volatility.
Factors to consider include:
- Beliefs: If you have religious or ethical beliefs, you might choose funds that comply with them. Devout Muslims might choose halal-compliant funds.
- Purpose: Know why you’re investing. Is it to protect against local currency devaluation or to make money? This will guide your choices.
Let’s say you have N2,000,000 and want to invest in mutual funds, half to hedge against Naira volatility and the other half for returns.
You could invest N1,000,000 in the Stanbic IBTC dollar fund, which returned 5.36% in 2021, making you N53,600.
For the other N1,000,000, you could split it between an aggressive fund and a conservative fund.
If you put N500,000 in the Stanbic IBTC aggressive fund, which returned 12.73% in 2021, you’d get back N63,250.
Putting the other N500,000 in the conservative fund with a 7.59% return would give you N37,950.
Overall, you’d make N154,800, a 7.74% return on N2,000,000, which might seem small but adds up over time.
Top mutual funds to invest in 2024.
- Stanbic IBTC absolute return fund
- Stanbic IBTC aggressive fund
- Stanbic IBTC balanced fund
- Stanbic IBTC bond fund
- Stanbic IBTC conservative fund
- Stanbic IBTC dollar fund
- Stanbic IBTC etf 30
- Stanbic IBTC’s ethical fund
- Stanbic IBTC guaranteed
- Stanbic IBTC Imaan fund
- ARM aggressive growth fund
- ARM ethical fund
- ARM Eurobond fund
- ARM money market fund