Investing in index mutual funds can bring you returns on your investment. Certainly, index funds are one of the easiest and fastest investments you can ever make in the financial market. However, investing in index products is not a child’s play, as an investor, you must learn the best index funds for you.
You might have heard about index funds on TV, friends, newspapers, and from our website. Virtually everyone is excited about index mutual funds for an obvious reason – the low investment cost. But what exactly are index funds? An index fund is a type of exchange-traded fund (ETF) or mutual fund that attempts to mimic the performance of a financial market index. They have lower expenses than actively managed funds and also they are designed to follow a passive investment strategy.
Are you interested in investing in index funds in Nigeria? We’ve got you covered. Whether you are a beginner or an expert investor, we will guide you on how to invest in index funds in Nigeria.
1. Know Where To Buy
You can buy an index fund directly from a brokerage service provider or a mutual fund company. Before choosing a company, ensure that the provider accommodates your needs. Consider the transaction fee, the commission fees, and how the company charge for buying and selling index funds.
Moreover, there are other factors you will need to evaluate before choosing index funds. One of them is timing. Timing is important, how soon do you need your money? How much will you pay to buy, own and sell the fund? What are the risks associated with the fund? Is the fund’s strategy compatible with your investment goals? Ensure that you read and get the full information about the fund and its prospectus.
2. Select an Index
There are several options for you to pick from, but in the varieties of these choices, you may have to invest in one. As an investor, you need to diversify your investment portfolio. Some of the indexes that you can select are funds that track small, medium, and large-sizes businesses, funds that focus on health-related businesses, consumer goods, and technology.
Also, you can make your research and look out for emerging markets and sectors that have a potential ground for investment.
Advantages of Index Funds
You’ll get the same return as the index itself.
It is transparent, you can view the fund’s holding at any time. This enables you to judge and ascertain the risks.
There is no need for you to employ the services of a portfolio manager, stock analysts, and researchers. So, you’ll enjoy trading at lower costs.
Rather than buying individual stocks outright, you can create your portfolio by purchasing hundreds or even thousands of companies at once.
Disadvantages of Index Funds
It is not flexible. You cannot sell stocks that are performing poorly.
It rarely outperforms the index.
As a Nigerian, index funds happen to be a good investment option for you to tryout due to their low costs, ease of use, and diversity. Just before you invest, make a research on the ETF or index funds because they aren’t created equal. Most importantly, if you find it confusing, you may need to consult a financial advisor.