Mutual Funds

Mutual funds are investment arrangements that pool funds from various investors. This pool of funds is then invested in a mix of carefully selected instruments. For example, a mutual fund can invest your money in a basket of stocks or stocks, t-bills, and bonds. They are usually overseen by a professional who is called a fund manager

Mutual Fund Types

Most mutual funds, whether Naira or Dollar fall into one of three different categories based on their risk level.

  • Conservative
    These types of funds are usually low-risk in nature, that is, there’s very little to no chance of incurring any loss on your capital. Conservative funds invest in highly liquid, short-term instruments like cash and treasury bills. It is largely made up of money market funds or fixed-income securities.
  • Moderate
    Funds in this category, such as bond funds and balanced funds, are of medium risk level and are suitable for investors who are open to taking on some risk. Bond funds are essentially loans given to entities, with promises of interest payments. Balanced funds are a mix of bond funds and equities.
  • Aggressive
    These types of funds are often referred to as equity funds and are of a higher risk level. They invest majorly in stocks of different companies.

How do Mutual Funds work?

You invest with a mutual by purchasing units of the fund. Think of it as owning houses in an estate. Just as house owners earn through rent, units also earn returns.

These returns come in two forms: periodic distribution and capital gains.

With periodic distribution, if the annual rate is 10%, for instance, you'll earn a daily share of that on each unit you own. This is then distributed to you on either a quarterly, bi-annual or annual basis. This applies majorly to mutual funds that are low-risk and invest in money market instruments like treasury bills.

On the other hand, capital gains happen with changes in unit prices. For example, if you buy 10 units of a fund at ₦1,000 each and the unit price changes to ₦1,100 within a year, it has gained 10% and your capital of N10,000 has grown to N11,000. This applies more to funds that invest in bonds and stocks or a mix of both. They are often categorized as medium and high-risk funds.

Common Mutual Fund Terms

  • Buy Price: This is used to determine how many units of a fund you’ll get when making an investment. It changes on a daily basis.
  • Sell Price: This is the price at which a unit is valued for sale when making a withdrawal. It also changes on a daily basis.
  • Current Value: This is the current value of your investment as at today. For a low-risk fund, it is the sum of your investment and returns earned over time. For other fund types, it is determined by multiplying your current units by the sell price of the fund for that day. For example, if you have 90 units and the sell price for a fund today is N100 today, your current value will be N9,000
  • Annual Returns: This shows the total returns for the fund over the past 12 months. It is, however, not a guarantee of what the funds will earn in the next 12 months. Annual returns change daily and apply mostly to low-risk funds.
  • YTD Returns: Year-To-Date (YTD) returns show the change in the unit price of a fund from the beginning of the year to today. This applies mostly to medium and high risk fund types
  • Units: when you invest in a mutual fund, units will be issued to you. The units issued will be based on the price of the fund and the amount being invested. In other words, if a fund is going for N100 per unit and you invest N10,000, you will be issued 100 units.
  • Investment Returns: This shows how much you’ve earned in returns from your investment in a mutual fund
  • Price Change: This shows the degree of change in the price of a fund on a daily basis. The Embed API will give you access to view the change on a 30-day rolling basis. A price increase is calculated as [(New Price - Old Price)/Old Price] * 100. A price decrease is calculated as [(Old Price - New Price)/Old Price] * 100.
It is typically advisable to make a sale of your mutual fund investment when the sell price is higher than the buy price. In some cases, the buy and sell price will be the same, this advice still applies. Your focus will be on if the price has significantly grown above what you purchased the units at when you invested.

Available Mutual Funds on the Embed API

Mutual funds currently listed on the Embed API are based on partnerships with several fund managers. Fund managers are professionals who oversee the money invested in a fund to ensure it makes more money.

The Embed API currently has over 20 mutual funds available based on different risk types, currency and beliefs. You can get all available mutual funds by calling /assets endpoint and passing the asset_type query parameter ( asset_type could be fund or tbills)

How to Integrate & Invest in Mutual Funds through Embed

Sample Mutual Funds Flow
“user views available mutual funds → user selects a preferred option → user specifies amount and proceeds to make payment → payment is confirmed and investment is created → user is credited with value and units”

To learn how to manage the assets resource or view a sample mutual funds object, kindly visit the API Reference

Mutual funds on the Embed API are not locked and can be bought and sold at any time. Users can add more money to an investment but it will be processed at a different interest rate and price.