Indexes

An index is an investment bucket made up of a collection of assets. It is built to measure, track or replicate the performance of a group of assets or a certain area of the market. It could be broad based, that is it tracks the entire market or more specialized, that is, it tracks a particular segment of the market. For example, you could have an index that’s a collection of mutual funds, a collection of foreign stocks or a collection of money market funds only etc.

Indexes shine in situations where users want to spread their investment across several asset types rather than putting it in one type. That is, when a user wants to invest in a collection of foreign stocks at once, rather than having several single stock investments for example. It is a great option to achieve portfolio diversification.

Types of Indexes on the Embed API

Indexes on the Embed API have been categorized broadly under two headings:

  • Managed Indexes
    This contains indexes created and/or made available by the admin, that is, Cowrywise. We currently have both Nigerian managed and US managed indexes made up of Nigerian and US assets respectively.
  • Unmanaged Indexes
    This refers to indexes created by the user, that is, you. When creating an index, you will need to specify what assets you’re looking to include in your index as well as the investment strategy to be applied to your index. Currently, indexes created by you will only be accessible to you to invest in.

Creating an Index

The API has specially curated Indexes that you can pick from. It is, however, also possible to create custom Indexes. To create a custom index, you will need to:

  • Specify the assets to be included in it (e.g. Meristem Money Market, ARM Money Market, United Capital Balanced Fund & Lotus Halal Fixed Income). Note: We don’t make provision for you to add a stock to an index at the moment.
  • Specify the weights to be used in splitting money across the assets. The weight should typically amount to 100%. Using the examples above, that could be 25% for each or 30%, 20%, 40%, 10%.
  • Specify the name and a description for your index

Index Investment Transactions

Deposits into or withdrawals from an index will be processed based on the set strategy of the index per time. Below is a sample index showing the weight assignment for each asset in the index and the amount split for a user depositing N10,000 into it.

Assets Weight Amount Split
Meristem Money Market 25% 2500
ARM Money Market Fund 25% 2500
UC Balanced Fund 25% 2500
Lotus Halal FIF 25% 2500

Weight assigned to each asset is not always fixed. It may be rebalanced from time to time by the index creator based on the desired investment objective for which the index was set up.

The US Managed Index

This is a unique index on the Embed API. It is made up primarily of US asset types; stocks, bonds and cash. The US managed index is broken down into three different categories based on risk level and investment preference which impacts the weights allocation for each asset type. These categories are:

  • Conservative
    The conservative index category seeks to help investors primarily preserve their capital and minimize losses.
  • Balanced
    This index category is more open to risk than the conservative category but lesser than the aggressive. It stands in the middle of both categories and seeks to help investors achieve a balance between minimizing losses and maximizing returns
  • Aggressive
    The aggressive index category is more risky in it’s asset type allocation. It’s primary aim is to help investors maximize returns and grow their portfolio

Irrespective of the category, it is important to note again that they all include stocks, bonds and cash assets. The only difference is in how the weights are assigned.

Index Returns Calculation

Returns on an index investment on Embed is calculated as [{current price/previous price - 1} * 100].

Here’s a sample response object when creating an index investment for users, you

{
  "index_id":"44d97203-e91d-4515-8488-0430b54ed464",
  "account_id":"88363e3c-38ee-4007-b83c-503cdb912fe0",
  "is_user_created":true,
  "asset_code":"AST-INDEX-622963483",
  "name":"Dewcs",
  "description":"A custom index containing x y z assets",
  "asset_type":"index",
  "asset_class":"variable-income",
  "created_on":"2021-06-15T09:23:45.591016+00:00",
  "allocations":[
    {
      "asset_id":"c95c50f4-9982-4fcc-bfc3-880057c64f21",
      "asset_name":"United Capital Equity Fund",
      "asset_code":"AST-FUND-174669468",
      "weight":50.0
    },
    {
      "asset_id":"bd353632-0c77-42b5-bc9b-913ca60d4db2",
      "asset_name":"Afrinvest Equity Fund",
      "asset_code":"AST-FUND-367626263",
      "weight":50.0
    }
  ],
  "index_type":"unmanaged",
  "country":"NG"
}
Sample Index Object

Visit the API reference for a complete guide.