Stories by Chinenye Anuforo

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A unit trust is an investment fund contributed by several investors for investment in a portfolio of securities – stocks, bonds, money market instruments, real estate, among others – managed by a fund manager. It is simply an investment vehicle that seeks to employ the perceived professional skill of a fund manager to invest on behalf of diverse investors who pool their funds together for that purpose.
In adopting this investment strategy, such investors save themselves the rigour of selecting and managing their investments by themselves, rather trusting in the competence of the professional fund manager to do so in their place. Usually, one justification for this is the expectation of better results than the individual hopes to personally achieve. Another is the fact that it allows them to benefit from a wider basket of investment assets, which the manager is able to invest in with the pooled funds. The investor may choose to toe this path exclusively or just as one option for his investments.
Modalities
Like stocks, unit trust funds are denominated in units. Each investor buys into the funds by acquiring its units. In effect, what the investors directly receive is a certificate of ownership of a certain number of units of the fund, not the specific stocks, bonds or any other investment assets of the fund. The fund’s assets themselves can be quite fluid, as the manager switches assets based on his reading of market opportunities. It is the prerogative of the fund manager to choose assets to invest in and the individual investor is not consulted. However, to protect investors and meet their investment aspirations, each fund has its defined investment perimeter. In effect, what areas of investment it can undertake and the range of possible asset allocation to each asset class are usually spelt out in its approved operational framework. The investor therefore generally knows the investment sectors his money is being channeled into but not necessarily the specific assets.
Regulation
Unit trusts are regulated by the Securities and Exchange Commission (SEC), which scrutinises and approves applications to operate such schemes. SEC therefore has the primary duty to protect investors in such funds and, so far, its ability to discharge that regulatory role has not been questioned. The law also requires the appointment of qualified trustees to further oversee the operation of a unit trust and see to the protection of the funds and the interest of the investors.
However, in Nigeria, investors shy away from the scheme even with the gains inherent in it. In separate chats with stakeholders in the market, it was revealed that lack of trust and enlightenment on the scheme prevents investors from keying into it.
For instance, the Chief Executive Officer/Managing Director of Highcap Securities, Mr. David Adonri, acknowledged that the Unit Trust Schemes or Mutual Funds are good for diversification of portfolios and management of client investment professionally. “They are regarded as the best platform through which retail investors can access the capital market.”
However, Adonri noted that because the pricing of the unit trust scheme is not market determined and lacks transparency, several investors shy away from it.
He explained also that owing to the fact that returns on unit trust schemes in recent times have not been impressive, investors sideline them, adding that for them to become more attractive, the returns need to be encouraging.
The President, Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, pointed out that because investors do not have enough awareness and education on the scheme, it is not working in Nigeria. “I think because people have not got enough awareness of the scheme, how it works and what is involved, that is why they are not keying into it. If you are bringing a product into the system, you need to educate the people on it. You don’t just bring in a product into the market without enlightening people.”
He advised that for the scheme to work in Nigeria, its promoters need to go back to the drawing board and look at those things they did not get right and do them right, for instance, educate the public on what unit trust scheme is all about, what they stand to gain investing in them, among other things.
In his own contribution, the Chief Executive Officer, Pac Securities, Mr. Eugene Ezenwa, said that unit trust scheme has never worked well in Nigeria because of corruption, mismanagement and lack of trust.
He noted that another reason investors don’t invest in the scheme is because they don’t understand its technicalities. “Investors fear that most professionals may not give good account of the units, so they prefer investing in shares than pooling resources together with other investors to invest in unit trust.”
Ezenwa explained that for the scheme to be workable in Nigeria, enough enlightenment and awareness need to be done. “Investors need to understand the technicalities of the unit trust scheme for it to work,” he said.