SEC DG, Arunma Oteh
In a bid to ensure that the more retail investors return to the capital market via mutual funds, the Securities and Exchange Commission (SEC) has embarked on plans to cap the total expenditure by a fund manager in a single year at 2 per cent.
Currently, the SEC rule allows fund managers of collective investment schemes in the country to spend only 5 per cent of their fund’s net asset value.
Director, Collective Investment Schemes Department (CIS), SEC, Mrs. Eni Umukoro, who made this known while presenting a paper at the just-concluded SEC journalists’ academy in Abuja.
She stressed that the move was to ensure that fund managers spend less in a financial year so as to give better returns to unit holders.
“More so, in most developed countries it is 2 per cent. The idea is to ensure that there is enough money to give unit holders quality returns. Again this will help us retain exiting unit holders and attract more retail investors to the stock market through this medium.
“The reason why Ponzi schemes thrive is that they prey on the greed of investors by promising mouthwatering returns. So if we can reduce the expenditure of fund managers and free up money for quality returns for investors in mutual funds, we would have achieve our aim to protect every investor in the capital market, “she said.
The Committee for the Resuscitation of the Capital Market set up by the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, had last week recommended that retail investors should be prohibited from investing directly in the Nigerian equities.
Currently, retail investors with as low as N5, 000 can approach a stockbroker and purchase shares on the floor of the Nigerian Stock Exchange (NSE).
However, in its report submitted to Okonjo-Iweala, which also contained the N22.6 billion forbearance package for stockbrokers, the committee has recommended that retail investors should be made to buy equities through Collective Investment Schemes (CIS).
According to the Committee, which has Deputy Governor of the Central Bank of Nigeria (CBN), Financial System Stability (FSS), Dr. Kingsley Moghalu, as chairman, the minimum subscription amount for capital market transactions be raised so that only institutional investors, market makers and high net worth individuals can invest directly.
The committee explained that following the near-collapse of the Nigerian capital market on the heels of the market downturn, it was important to implement changes to better manage investors’ exposure to market risk.
“The committee suggests that the minimum subscription amount for capital market transactions be significantly raised, such that only qualified institutional investors, market makers and high networth individuals can directly access the market.
“This would prevent vulnerable retail investors lacking in-depth understanding of the risks associated with the market from directly exposing themselves without the guidance of licensed asset managers. The investment strategy for such investors should be through managed funds, whereby individual stock selection is done by professionals who understand the risks inherent to the capital market,” the committee said.