In a previous edition, we advised that collective investment schemes (CIS) is the best way for a novice investor to explore wealth creation in the equities market.
CIS, licensed and regulated by the Securities and Exchange Commission (SEC), is an arrangement in which participants pool contributions to share profits or income from the management of their money by a third party.
At the end of the year, the fund manager, who must be registered under the Investments and Securities Act (ISA) 2007, is paid out of the profit and the remaining (or part) is distributed among the contributors as dividend or profit.
Below are some genuine CIS portfolios for consideration. Any of them can yield good returns.
Venture capital
It is a profit seeking venture by an entrepreneur, whose primary objective is to provide funds not otherwise available to new and growing business ventures for the purpose of making profit in the long term.
New and young companies seeking to grow rapidly may raise funds through venture capital sources, like institutional investors, wealthy individuals who are members of a business community, risk takers with acumen to select good ventures with strong potentials.
Corporate organisations – set up to finance new businesses which cannot get bank loans because of a lack of collateral and track record – can also invest in venture capital funds.
Unit trust scheme
This is a fund into which small sums of money from individual investors are collected to form a “pool” to invest in stocks, shares and money market instruments.
The pool is handled by professional fund managers on behalf of the contributors, called unit holders or subscribers.
Unit holders enjoy the diversification and professional management of their fund at low cost. The total fund of a unit trust scheme is divided into units of exactly equal monetary value.
If one unit is N1, for instance, anyone investing N100 will get 100 units. Unit trust funds are invested in highly-rated securities by the management company on behalf of unit holders.
Unit trust scheme comes with Trust Deed, the agreement between the Fund Manager and the Trustee. This governs the management of the scheme by laying down rights, responsibilities, investment objectives, policies, outlets and all other relevant information of the fund.
The fund is usually listed and traded on the Nigerian Stock Exchange (NSE) and its price is determined by supply and demand. A unit holder who wants to redeem his unit has to go through his Stockbroker.
Real estate investment trust scheme
Real estate investment trust scheme (REITS) is a collective investment scheme which directly invests (acquires, holds and manages) income generating real estate (and real estate related) assets using pooled funds from subscriptions of its participant investors or unit holders.
REITS can be either closed-end or open-end. They must have at least 100 unit holders.
At least 75 per cent of a closed-end REITS assets must be in real estate. At least 70 per cent of an open-end REITS assets must be in real estate or real estate-related. None of the assets may be outside Nigeria.
At least 75 per cent of income must come from rents, mortgages or sale of property.
At least 90 per cent of net income must be distributed to unit holders.
REITS are structured to have a fund manager, a property manager and trustees. They are regulated by the SEC and the Federal Inland Revenue Service (FIRS).
The first established REIT was SkyeShelter Fund, but it lacked tax exemption.
