A Collective Investment Scheme (CIS) in Nigeria is a type of investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities, such as stocks, bonds, real estate, or other assets.
The Investments and Securities Act (ISA) No. 29 of 2007 (Section 153) defines a Collective Investment Scheme 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 a portfolio, and in terms of which:
Two or more investors contribute money or other assets to and hold a 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 scheme authorised by any other Act”[1].
CIS is a term used to describe various investment funds, including mutual funds, unit trusts, and exchange-traded funds (ETFs), all of which fall under the category of regulated investment funds.
Here's an overview of collective investment schemes in Nigeria:
Regulation
CIS in Nigeria is regulated by the Securities and Exchange Commission (SEC) under the Investment and Securities Act (ISA) 2007. The SEC establishes guidelines and regulations to ensure investor protection, transparency, and proper functioning of CIS.
Types of Collective Investment Schemes in Nigeria
1. Unit Trusts
A Unit Trust Scheme is a Fund where small amounts of money from individual investors are aggregated to create a collective "pool." This pool is subsequently utilised by skilled fund managers to make investments in stocks, shares, and money market instruments on behalf of the contributors, referred to as unit holders [subscribers].
2. Venture Capital (VC)
A Venture Capital (VC) fund is a type of investment fund that provides financing to startups and early-stage companies with high growth potential in exchange for equity ownership. Venture capital funds play a critical role in supporting innovation, entrepreneurship, and the growth of new businesses. These funds are managed by professional investors who make investment decisions on behalf of the fund's limited partners (LPs).
3. Real Estate Investment Trust Scheme (REITS)
REITS is a Collective Investment Scheme that directly invests (acquires, holds and manages) in income-generating real estate (and real estate-related) assets using pooled funds from subscriptions of its participant investors/ unit holders.
4. Infrastructure Funds
Infrastructure funds are investment vehicles that focus on financing and managing various essential physical assets and structures that underpin the functioning of economies and societies. These assets can range from transportation systems (roads, bridges, airports, railways), utilities (water, electricity, gas), and communication networks (telecom, internet) to social infrastructure (hospitals, schools, public buildings).
5. Exchange-Traded Funds (ETFs)
ETFs are passively managed investment funds that trade on the stock exchange like stocks. They aim to replicate the performance of a specific index, sector, or asset class. ETFs offer liquidity and allow investors to diversify their portfolios easily.
Classes of Funds
Equity-Based Fund: These invest primarily in stocks of companies listed on the Nigerian Stock Exchange (NSE). They offer the potential for capital appreciation but come with higher risk.
Bond/Fixed-Income Fund: These invest in fixed-income securities such as government and corporate bonds. They are generally considered lower risk compared to equity unit trusts.
Balanced Fund: These invest in a mix of both equities and fixed-income securities, providing a balanced approach to risk and returns.
Money Market Funds: These invest in short-term, low-risk money market instruments such as Treasury bills and commercial papers. They are suitable for capital preservation and generating stable returns.
Dollar Funds: Both Dollar Eurobonds and Dollar Fixed Income Funds are available in the market. This investment opportunity allows individuals to diversify their portfolios and potentially benefit from the performance of global assets denominated in dollars. The Funds typically invest in a variety of dollar-denominated assets, which can include stocks, bonds, money market instruments, and other securities from different countries.
Ethical Funds: Investment vehicles designed for individuals who want their investments to align with certain ethical or social principles. The investments made by ethical funds are carefully screened to exclude companies or industries that engage in activities considered harmful or unethical according to the fund's defined criteria.
Shari'ah Compliant Funds (Equities and Fixed Income): Investment vehicles that adhere to Islamic principles and guidelines as outlined in Islamic finance. These funds are designed for Muslim investors who want to invest in a manner that is consistent with their religious beliefs.
Real Estate Investment Trust Scheme (REITS): A specialized investment vehicle that allows individuals to invest in real estate assets without having to directly own or manage the properties. REITs provide an avenue for both individual and institutional investors to participate in the real estate market, offering benefits such as diversification, income generation, and potential capital appreciation.
Advantages of CIS in Nigeria
Diversification: CIS provides access to a diversified portfolio, which helps reduce risk.
Professional Management: Qualified fund managers manage the investments, making informed decisions based on market conditions.
Accessibility: CIS allows individual investors with different capital levels to participate in the financial markets.
Liquidity: Most CIS products offer liquidity, allowing investors to buy or sell units regularly.
Regulation: CIS in Nigeria is regulated by the SEC, ensuring a level of investor protection.
Variety of Options: There are various types of CIS available, catering to different risk appetites and investment objectives.
Key Considerations
Investment Objectives: Choose a CIS that aligns with your financial goals and risk tolerance.
Fees and Expenses: Be aware of the costs associated with investing in a CIS, including management fees and other charges.
Performance: Research the historical performance of the CIS and its consistency over time.
Investment Strategy: Understand the investment strategy of the CIS and how it matches your objectives.
Exit Strategy: Know how to buy and sell units of the CIS and any associated costs.
Disclosure Documents: Review the fund's prospectus or offering documents to understand its structure, risks, and terms.
Investing in a CIS can be an efficient way for individuals to access professional investment management and diversification without the need for substantial capital or extensive investment knowledge. Investors can gain exposure to different asset classes without directly managing individual investments. As with any investment decision, it's important to conduct thorough research, consider your investment goals, and seek advice from financial professionals.
[1] https://sec.gov.ng/collective-investment-scheme/
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