What is a Mutual Fund?

A mutual fund is a collective investment scheme that pools money from multiple investors to invest in a diversified portfolio, such as stocks, bonds, or other securities, managed by a professional fund manager. It offers accessibility, diversification, and experienced oversight.

Key Facts About Mutual Funds

1. Types of Mutual Funds

• Money Market Funds: Short-term, low-risk instruments
• Equity Funds: Invest in stocks; higher risk, higher potential returns
• Bond Funds: Invest in corporate or government bonds
• Balanced Funds: A mix of stocks and bonds
• Index Funds: Track benchmark indices like the NGX 30 or S&P 500
• Sector Funds: Focus on specific sectors such as tech or healthcare

2. How They Work

• You invest in the fund.
• The fund manager (e.g., Meristem Wealth Management) invests in a diversified portfolio.
• Returns (interest, dividends, or capital gains) are either paid out or reinvested.

3. Net Asset Value (NAV)

NAV is the per-unit value of a mutual fund, calculated daily. It determines how much you pay to buy or receive when you redeem.

4. Charges to Note

• Management Fees: Charged as a percentage of your investment
• Entry/Exit Load: Applicable in some funds when buying or selling
• Performance Fee: Sometimes charged if the fund outperforms its benchmark

5. Benefits

• Professional fund management
• Built-in diversification
• Liquidity (easy to enter and exit)
• Regulatory oversight and transparency
• Affordability for all levels of investors

6. Risks Involved

• Market Risk: Especially for equity and bond funds
• Interest Rate Risk: Affects bond funds and MMMFs
• Inflation Risk: Returns may lag behind inflation in some cases
• Manager Risk: Fund performance can vary based on managerial skill

7. How to Get Started

• Invest directly through a wealth management firm like Meristem
• Use stockbrokers or regulated investment platforms
• Consult your bank or a certified financial adviser

Common Misconceptions About Mutual Funds

Myth 1: Mutual Funds Are Only for the Rich

Reality: Mutual funds are for everyone. For instance, Meristem Money Market Mutual Funds and Meristem Equity Market Funds accept investments from as low as ₦10,000, making them accessible to a wide range of investors.

Myth 2: All Mutual Funds Are High-Risk

Reality: Mutual funds vary in risk. A Money Market Mutual Fund (MMMF) is low-risk, while equity funds are higher-risk. There’s a suitable fund for every risk profile.

Myth 3: You Can Lose All Your Money

Reality: While equity or sector-specific funds carry some risk, mutual funds are usually diversified to cushion against the poor performance of any single asset.

Myth 4: They Offer Fixed Returns

Reality: Unless stated otherwise, mutual funds are not fixed-income products. MMMFs aim to preserve capital and generate consistent returns, but they are not guaranteed.

Myth 5: You Can Only Withdraw at Maturity

Reality: Unlike fixed deposits, many mutual funds, especially MMMFs, offer flexible withdrawals within 24–72 hours.

Spotlight: Money Market Mutual Funds (MMMF)

What Is an MMMF?

A Money Market Mutual Fund (MMMF) invests in short-term, low-risk instruments such as Treasury bills, commercial paper, and certificates of deposit. It offers capital preservation, liquidity, and modest returns, ideal for conservative investors or temporary savings.

Who Should Invest?

• Individuals or businesses looking to park idle funds
• Investors with a low-risk appetite
• Anyone seeking better returns than a regular savings account

What to Expect

• Returns: Generally better than savings accounts, depending on interest rates
• Liquidity: Easy redemption, usually within 24 hours (as offered by Meristem)
• Safety: High stability, though not entirely risk-free

Frequently Asked Questions

Is a Mutual Fund the Same as a Fixed Deposit?
No. Fixed deposits offer guaranteed returns; mutual funds are market-linked.

Are Mutual Funds Safe?
It depends on the fund type. MMMFs are among the safest options.

How Do I Track Performance?
Daily or weekly NAVs and reports are available on your fund manager’s website or investment platform.

Can I Lose Money in an MMMF?
It’s rare, but it’s possible under unusual market conditions. MMMFs are designed to preserve capital.

Is There a Lock-In Period?
MMMFs generally have no lock-in. Some equity funds might have minimum holding periods.

Should You Invest?

Absolutely—if you’re seeking a well-managed, diversified, and goal-oriented way to grow or safeguard your money. Whether you’re saving for the short term or building long-term wealth, there’s a mutual fund to match your financial goals.

Meristem offers a range of mutual fund options, including MMMFs, designed for capital preservation and flexibility, perfect for emergency funds, idle savings, or conservative investors.

Final Tip

Match your mutual fund selection with your goals, timeline, and risk profile. Always review the fund’s factsheet or speak with a financial advisor, like those at Meristem Wealth Management, before investing.