Mutual funds Vs Treasury bills in Nigeria, knowing the difference and also the similarities between the two financial investment in Nigeria.
It came to my notice that there are some people who really thinks that treasury bills and mutual funds are the same, after all it is a money market investment.
The truth is that they two investments are different.
I mean treasury bills and mutual funds are completely different from each other, irrespective of the fact that they are money market instruments.
So this post mutual funds vs treasury bills in Nigeria will let you know the difference between the two, and also their similarities.
On this website, i’ve talked much about treasury bills and also mutual funds, but i realized that there are some people that thinks that the two are the same. This is based on the number of mails and messages i receive about treasury bills and mutual funds.
First let me explain the two investment opportunities, the mutual fund and treasury bills.
Treasury bills are short term investment securities issued by governments to finance national borrowing requirements.
It is issued by the federal government through the central bank of Nigeria to the public.
The tenors are; 91 days, 182 days and 364 days, with the minimum operating amount being fifty million naira for primary market and one hundred thousand naira for secondary market.
On the other hand, mutual fund is a short term investment, whereby a firm, organization or a financial institution pools cash from different investors for the purpose of investing in the money or capital market.
It’s tenors varies from merchants or stockbrokers. For example some merchants will offer tenors of one month, three months and six months, while some will offer to one year.
The minimum amount to invest in mutual funds is relatively cheap, like ten thousand naira and above compared to treasury bills.
So let’s go over to mutual funds vs treasury bills in Nigeria and know how they differ.
Mutual funds Vs Treasury bills in Nigeria
Below are the major difference between the two investment opportunities we have in Nigeria; T-bills and mutual funds.
1. Method of purchase
The first difference between the two is that treasury bills are issued by the federal government through the central bank of Nigeria, whilst mutual funds are issued by merchants or stockbrokers.
To buy treasury bills from the central bank, you must have an active licensed stockbroker, while it isn’t the case with mutual funds.
2. Price difference
Treasury bills requires a huge sum amount of money to invest in, a minimum of fifty million naira or one hundred thousand naira. Mutual funds on the other hand requires a minimum amount of ten thousand naira only.
This makes it lot easier for the general public to invest in mutual funds than the treasury bills, unless you’re buying from the secondary market which requires a minimum of one hundred thousand naira.
3. Method of auction
The third mutual funds vs treasury bills in Nigeria is that t-bills are auctioned biweekly through the central bank, while mutual funds can be bought directly from financial institutions on any given date and time.
Even if you’re buying t-bills from the secondary market like banks, they usually request that investors willing to invest in their treasury bills do it between 9am in the morning till 12 pm in the afternoon.
This is to attain the current interest rate or bills before issuing it to investors. For mutual funds, investors can contact any financial institution of their choice and purchase it at any given rate rate and time.
4. Rates offered mutual funds vs treasury bills in Nigeria
Treasury bills always have a high interest rate compared to mutual funds, unless you’re buying from the secondary market.
However, even if an investor is buying from the secondary market like banks or non bank financial institution or organisation, it tends to offer high interest rates than mutual funds.
Let’s forget about the current situation which makes the interest rates offered in t-bills to be relatively low, i’m sure things will go to normal after this pandemic.
Normally, you can get an interest rate as high as 12% on t-bills, while mutual funds is usually pegged to five to seven percent respectively.
5. Different types of risk
Treasury bills in Nigeria offers a relatively low risk investment to investors, as it is offered by the central government or the money deposit banks.
If you invest in treasury bills, be rest assured that you’re getting your returns on investment.
However, this can’t be said when it comes to mutual funds. Mutual funds involves different types of money and capital market instruments which includes bonds, treasury bills, stocks etc.
This in turn makes it to be a risky investment, especially if the organisation buys from the capital market. But this does not mean that investing in mutual funds isn’t a good idea, no i didn’t say so.
Rather, if you want to invest in mutual funds, you should make a thorough inquiry about the organization that you want to buy their mutual funds.
There are lot’s of good organisations offering mutual funds like arm, stanbic ibtc mutual funds etc and their minimum opening amount is ten thousand naira.
These are the major difference between mutual funds and treasury bills in Nigeria. You can read more about mutual funds and how it works in Nigeria.
What about their similarities?
The number one is that they are among the best financial investment in Nigeria today. The tenors involved in mutual funds and treasury bills ranges from one month to one year.
Buying from the secondary market in t-bills is almost the same as the mutual funds, with a slight difference in purchases.
In T-bills some financial organizations requires that an investor purchase their t-bills between 9am in the morning to 12pm in the afternoon as the interest rates varies with time and dates.
Treasury bills vs mutual funds which is the best
There’s no way you can compare the two financial investment, t-bills is way better compared to the mutual. The interest rates are lot better and it is risk free which can’t be said when it comes to investing in mutual funds.
Though investing in mutual funds under a good financial organisation is also risk free just like treasury bills.
For me, i will always recommend treasury bills to mutual funds unless you don’t have enough capital to invest in the Nigeria t-bills.
Don’t forget to learn how to calculate treasury bills in Nigeria.
That’s it and i hope you have understood the difference between the and also their similarities. With this i bet i’ve answered the question on mutual funds vs treasury bills in Nigeria.