The Nigerian Capital Market which houses our stock exchange, is the market where long term investments are traded. From corporate equities to debt securities, the market gives you an avenue to grow with its listed companies and make impeccable gains – albeit with a level of risk.
However, if risk is something you would like to avoid or if you want your investment portfolio to also have a few extremely safe investments, then the Nigerian Money Market is where you should turn to. Money market investments are the opposite of capital market investments. They are short term investments that mature within a defined period of time.
They also offer high liquidity and come with very low or no risk at all because there is a very little possibility of default. Since it is completely unrealistic to expect high returns from low-risk investments, the gains are not a lot. As such, they are for the conservative investor.
Here are some of the top investment opportunities offering little risk:
Treasury Bills or securities are the most popular money market instruments for the conservative investor. Treasury Bills can be obtained from different banks at varying minimum deposits in banks.
However, it is the federal government that issues treasury bills at discounted prices for maturity periods starting from 91 days. Your money is secured because the government buys back the bills at full price at the end of the maturity period.
The profit on the investment is usually a fixed rate and it is gotten upfront. That is, if you put in N200,000 for 91 days at an interest rate of 5%, the 10,000 profit is gotten upfront.
Commercial paper is another great avenue for the conservative investor to invest his funds. Commercial papers are unsecured, short-term debt instruments issued by companies to cover short term liabilities or to finance certain projects.
Not all companies can issue commercial papers as not all can fulfil the obligations attached to them. As such, only companies with high creditworthiness like blue chip companies should be invested in.
They have a fixed maturity of not more than 270 days which is 9 months and just like treasury bills, they are issued at discounted rates.
Bank Savings/ Fixed Deposits
There are various savings packages offered by a diverse range of banks in Nigeria. This is generally low risk as is it backed against the bank. However, a limitation is that the interest rates offered might be lower than the going inflation rate.
That is, if the savings account is offering 5% and inflation is at 8%, you would be losing 3% purchasing power on your investment. Fixed deposits are offered by banks as well and they are great for saving your funds.
Their rates are normally higher than regular savings accounts and while you can draw them at any time, there are penalties for defaulting.
Certificate of Deposit
Also issued by commercial banks and credit institutions, they are risk free and can be regarded as insured funds in the bank. A Certificate of Deposit has a specific maturity period as well as predetermined interest rates.
Certificates of deposit are issued to guarantee investors specific interest rate over the set term. They are also great investment options for the conservative investor.
The major advantage of any of these investment options is that they are essentially low risk. As such, their returns are low. However, their limitations lie in the very fact that the gains from them might be too low.
In an ideal situation, these investments should only be embarked on when you are trying to build up a safe fund for contingencies and emergencies, where you need to diversify your investment portfolio or when you know you would need the money on a recurring basis or in the short term.
Investing principally in money market funds and other short term investment opportunities alone can negatively affect your ability to amass long-term