Category : Guides , Investing

How Do Mutual Funds Work? Like Pizza Slices.

How Do Mutual Funds Work? Like Pizza Slices.

Mutual funds explained in simple, everyday language for Nigerians.

After launching mutual funds, people kept asking how mutual funds work? If you’re still lost, it’s not as complex as you might have thought. Let’s get started with a simple illustration.

The pizza house (The stock market/money market)

You are at the pizza house, and you would really like to have some pizza but the attendant slams your dreams down as she says smugly, “The smallest box is NGN4,000. Cash or card?” You don’t have 4,000 to spend on pizza at the moment as your wallet won’t cooperate with your cravings.

Now what?

Seeing everyone else leave with their boxes of pizza makes you even more hungry. Without thinking too much of it, you send a message to your friends. “If you each send me NGN400, we can all have a slice of pizza.” Soon, you’re back at the counter waiting for your box of pizza.

Why is this beautiful?

With all your friends contributing, your craving and your wallet would finally get to cooperate and you and your friends can each have some pizza for the amount you have available. Although you don’t have the full amount needed to get a box, by pooling the amounts you and your friends have you still get a slice.

How does this tie back to mutual funds?

Mutual funds work just like pizza slices do. No jokes! Think of it as crowdfunding to get a box of pizza. That makes it possible for everyone to have a slice without paying the full amount.

Mutual funds pool together small amounts from multiple investors and then invest the piled up funds in professionally managed and high yielding assets.

And this is better because?

The funds provide you with diversification, enabling you to invest in different profitable companies like Nestle Nigeria and Dangote Cement. This reduces the risk of you losing out totally when markets start acting funny. Also, it helps to earn you high returns due to the diversified assets being invested in.

Finally, mutual funds also provide you with professional fund managers that monitor your funds and the assets you have invested in, taking away the stress of you keeping track of your funds.

What’s the topping on this pizza slice?

We have now made it possible for you to invest in mutual funds with as low as NGN100 — even lower than you could get a slice of pizza for. With our newly introduced retail mutual funds, the everyday Nigerian now has access to invest in mutual funds with as little as NGN100 from the comfort of their phones.

Are there any sides with this slice?

We’ve taken out the factors that used to be challenging and turned them to advantages for you. The everyday Nigerian now has access to mutual funds which was a challenge before as the popular minimum fee was placed between NGN5,000 to NGN10,000. Another advantage of investing in Nigerian mutual funds on Cowrywise is the transparency that comes with it as opposed to the limited transparency previously experienced.

We have also included a risk assessment to help you pick the best fit funds based on your investment profile. Call it the spice test, with spice representing “risk”. The test shows us how much of the spice you can handle.

Who’s getting a slice?

The pizza box is open and everyone’s invited to get a slice — or more. All you need to do is update or download the all-new Cowrywise app here to start investing.

How do I get the slice?

If you are a new user you’ll need to signup and verify your email. As an old user, all you need do is log into your updated app and do the following:

  1. On your dashboard, scroll down to “Invest In Mutual Funds”. You should tap that
  2. We’ll provide you with a short tutorial, then you can get started with a short test that will help us suggest best-fit funds for you.
  3. Based on your risk appetite, you’ll get a list of “Recommended Funds”. You can check out other funds if you wish but we advise that you go with funds recommended for your risk appetite (or hunger level, since we are speaking about pizzas)

Now that we are done with the basics, can we get on to some deeper questions you probably have on how mutual funds work? Keep tabs with us, we have some more explainers coming your way.

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