Business
Declining asset value: Nigerians abandon mutual funds
By AYOOLA OLAOLUWA
Hit by loss of revenue and declining assets value, Nigerians have continued to abandon mutual funds in droves for other investments schemes, Business Hallmark can reveal.
The nation’s mutual fund total net asset value, it would be recalled, hit its peak in early February 2021. However, it soon recorded a downward trend, losing over N200billion in the last seven months.
A recently released report by Quantitative Financial Analytics Ltd. indicated that the Nigerian mutual fund asset value fell by 12.37% from N1.572 trillion as at December 31, 2020, to N1.377 trillion as of September 3rd, 2021 on a year to date basis.
According to the President of Quantitative Financial Analytics Ltd., Uchenna Ndimele, while the sector made gains of N16.9 billion or 1.24% in the period under review, it recorded a decrease in Net Asset Value (NAV) owing to withdrawals that have exceeded subscriptions.
The report said while the industry only attracted a total inflow of N405.3 billion, it suffered a total outflow of N616.7 billion, resulting in a net outflow of N211.3 billion.
Much of the decrease, the report stated, emanated from the money market that used to be the flagship of the Motilal industry.
Some industry experts who spoke to BH on the downward trend blamed it on several factors, particularly the effects of Covid19 pandemic.
Many Nigerians who their lost jobs during the peak of the pandemic, the experts claimed, after closing their accounts, gradually withdraw their savings to spend on basic needs of life.
“Also, some Nigerians who got their salaries slashed or reduced by their employers have no option than to reduce what they now invest in the funds”, a source in the industry disclosed.
The biting economic condition been experienced by Nigerians have forced many of them to approach their investments firms to withdraw their savings in other to make ends meet.
Another factor haunting the mutual funds industry is the crash in interest rates. Rates paid on invested funds, various reports indicate, have remained low and unattractive to investors in the last three years.
The low-rates, experts argued, is serving as disincentive to yield-hungry investors who are daily cashing out of the money market and investing it in more lucrative investment schemes.
Also not helping matters is the bearish trend the capital market is passing through, particularly since the start of 2021.
According to the Nigerian Stock Exchange (NGX) report, as of December 31, 2020, Nigeria’s All Share Index ended the day at 40,270.72 points from 26,842.07 points recorded on December 31, 2019 (a performance of 50.03%).
However, fast-forwarded to September 17th 2021, about 9 months after, the All-Share Index closed at 38,933.61 points, which translates to a negative performance of 3.32%.
Owing to the poor performance, Nigerians who have their funds invested in stocks by their firms recorded a drastic fall in the value of their assets.
While the mutual funds industry is facing a tough patch, other schemes such as cryptocurrencies, Ponzi schemes, forex trading and others are recording a boom.
Multiple sources in the Deposits Money Banks (DMBs) disclosed that owing to the continuous fall of the naira, Nigerians with funds to spare have found comfort and solace in foreign currencies like the Euro, Pounds, dollars, Javanese Yen and other strong foreign currencies.
“The free fall of the naira is not helping matters with mutual funds as many mutual fund investors have or are resorting to trying to hedge the value of their investment by having their money in US Dollar or British Pound denominated Domiciliary accounts.
“This flight from mutual funds to domiciliary accounts is yet another factor leading to the continuous decrease in the total asset value of mutual funds in Nigeria”, said the Quantitative Financial Analytics Ltd. boss.
A source in the forex department of a first generation bank who wants to be identified only as Jide, said: “You can imagine buying a dollar for between N390 to N420 earlier in the year and now selling it today for at least N570. That is a staggering profit of N150. Just on one dollar.
“I know someone who made over N200 million selling some of his forex in a bank. That was even when a dollar was selling for N480. You can imagine him selling now.
“People are now trooping to buying and trading in forex. Even those that are not trading in it (forex), particularly the upper middle class, now prefer to keep their funds in domiciliary accounts where it will appreciate, rather than allow it to lose value”.
Another investment Nigerians are rushing into is cryptocurrencies. Though very unstable and risky, Nigerians, particularly the youths are trying out their luck with the scheme.
A report by Binance, the largest cryptocurrency platform by trading volume, titled “The World Goes Crypto: Top 5 Countries Adopting Crypto and How BUSD Helps,” stated that Nigeria leads the charge as the number 1 country in the world in cryptocurrency adoption.
The ranking was based on Statista’s survey on selected countries that said they used or owned cryptocurrencies in 2020.
According to the report, as of 2021, around 300 million people worldwide have owned or used crypto at some point in their lives. The source of the data, the report said, is from a recent estimate from blockchain technology company, TripleA.
In Q1,2021, Nigeria shocked the world when it posted a peer-to-peer, P2P Bitcoin trading value worth $99.1 million. The nation is followed by Kenya with $38.4 million ($61 million less than Nigeria’s), Ghana $27.4 million and South Africa in fourth position with $25.8 million.
In 2020, Nigeria’s Bitcoin trading volume was $309.6 million followed by South Africa’s $98.4 million and Kenya’s $92.4 million.
Despite repeated warnings from regulatory authorities such as the Central Bank of Nigeria (CBN) and the Security and Exchange Commission (SEC), Nigerians are also flicking to Ponzi schemes as it gives them the greatest amount of return on investment.
Despites almost daily accounts of investors falling prey to Ponzi schemes such as MMM and Penny Wise, findings revealed that Nigerians are daily withdrawing their money from mutual funds to invest in Ponzi schemes.
A typical Ponzi scheme attracts a 100% return on investments.
Many gullible investors have been migrating from mutual funds to the pyramid schemes, a development that is helping to decimate the net asset value of mutual funds.
“The decreasing trend of mutual fund assets in Nigeria is not new and it will continue as long as the factors that exacerbate such downward trend are still in play”, Ndimele warned.
