CIS: New rules germane to deepen potential

Collective Investment Scheme (CIS) or mutual funds is the right platform that will stabilise investment since it can attract and encourage numerous retail investors. CHRIS UGWU writes


Collective Investment Scheme (CIS) or Mutual Funds represents a major vehicle to get share investment right from the start and avoid possible initial disappointments killing the investors’ enthusiasm. These funds create a balance between the expectations of returns in a rising market and possibilities of losses when the market falls.


The investment portfolio for a beginner requires being constructed around a diversified group of securities, spread broadly across the market.


This will create a low portfolio risk advantage and thus guarantee the level of returns required to transform investments into great wealth over the years. Mutual funds operation in Nigeria came to the limelight for the first time during the early 1990s, as a result of the rapid growth in the financial sector induced by the deregulation policy of the mid 1980s.


They emerged as part of the financial markets innovations that followed the policy of deregulation. Banks engaged in competitive floatation and management of mutual funds then as is happening again presently.


A good number of them closed shop during the financial turmoil that followed and others remained relatively insignificant with limited impact in the capital market until the banking consolidation and the financial meltdown that resulted in plunge (depreciation in share price) in the equity market reinforced the investment bankers to start creating new mutual products.


Market analysts are of the view that mutual funds provide the means to connect the current apathy in savings and investment.


They argued that this became necessary following the downturn the Nigerian capital market had witnessed which resulted in investors experiencing heavy losses in their investments, leading to the apathy by  investors and lull in activities at the stock exchange.


They believe mutual funds are the right platform to attract and encourage numerous retail investors as majority of them does not have the investment savvy. They noted that the platform could also be used to curb the increasing wave of unclaimed dividend which retail investors are majorly affected.


Meanwhile this is why the Securities and Exchange Commission recently released general rules for Collective Investment Schemes. New rules, amendments on CIS The Securities and Exchange Commission last week released general rules for Collective Investment Schemes prescribing that all units/securities of a collective investment scheme shall be registered by the commission.


The Rule, which is on the commission’s website, also states that all units/securities subject to registration by the Commission may be offered through the following methods: (a) offer for subscription; (b) offer for sale; (3) Units/ securities of a collective investment scheme may be registered by way of a shelf registration. Shelf Registration is a filing undertaken by issuers intending to access the market in the near future.


It permits issuers to disclose certain information in a core disclosure document that is updated on a regular basis. According to the commission, in the case of Shelf Registration, some provisions shall be applicable and they include: the value of the shelf programme shall not be less than N5 billion,


An issuer may issue, offer or purchase, or make an invitation to subscribe for or purchase units under a shelf registration where at the time of the issue, offer or invitation, there is in force a shelf prospectus as updated by a supplementary shelf prospectus, both of which have been registered by the commission.


Other provisions are that a  shelf prospectus shall be subject to renewal every three years from the date of its issue; A shelf prospectus shall— (i) comply with the general form and contents of a prospectus as set out in these Rules and Regulations; (ii) state that the Shelf Prospectus has been registered by the Commission; (iii) state that the registration of the Shelf Prospectus and Supplementary Shelf Prospectus shall not be taken to be that the Commission endorses or recommends the securities or assumes responsibility for the correctness of any statements made or opinions or reports expressed therein.


The rule also stipulates that the shelf registration prospectus should contain a statement that no units will be allotted or issued on the basis of the Shelf Prospectus read together with any Supplementary Shelf Prospectus later than three years after the date of the issue of the Shelf Prospectus; if it contains any statement made by an expert or contains what purports to be a copy of or an extract from a report, memorandum or valuation of an expert, state the date on which the statement, report, memorandum or valuation was made and whether or not it was prepared by the expert for incorporation in the Shelf Prospectus; as well as set out such other information as may be specified by the commission.


The SEC rule also states that a supplementary shelf prospectus shall state such information as may be specified in these Rules and Regulations on contents of prospectus; state the offer period which should not be longer than twenty-eight (28) working days from the date of the issue of the Supplementary Prospectus or such longer period as may be allowed by the commission.


The prospectus is also expected to disclose information such as: I. where a matter has arisen and information in respect of that matter would have been required by the Act, these Rules and Regulations or any listing requirements of a recognized securities exchange, to be disclosed in a prospectus if the matter had arisen at the time the Shelf Prospectus was prepared; II. where there has been a significant change affecting a matter disclosed in the Shelf  Prospectus; III. where the Shelf Prospectus contains a statement or information that is false or misleading; IV. where the Shelf Prospectus contains a statement or information from which there is a material omission.


The supplementary shelf prospectus is also to contain information that the Prospectus has been registered by the Commission and that a copy has been lodged with the securities exchange where the units/securities are listed.


All shelf documents are expected to be made accessible to the public at the office/on the website of the Fund Manager/Promoter while the Fund Manager/Promoter of a shelf prospectus shall pay a filing fee of N50,000 and a vetting fee of N200,000 at the time of placement of documents on the shelf and the appropriate fees for registration of units/securities as provided in these Rules and Regulations at the time of the issuance of the units/securities.


In the case of a renewal, the Fund Manager/Promoter of a shelf prospectus shall pay a filing fee of N50,000 and a vetting fee of N200,000. Why investors should leverage mutual funds Some market operators in the Nigerian Capital Market have described investment in CIS or mutual funds as a good investing strategy that is giving investors greater access to professional fund management.


According to Managing Director, Crane Securities Limited, Mr. Mike Eze, “investors that do not have in-depth knowledge of the capital market nor the time and expertise to analyse and invest in stocks and bonds, mutual funds offer various benefits which include affordable access to expensive stocks, risk diversification; mutual funds invest in a basket of asset.


Eze noted that except the investing public begin to access the stock market through investment professional, equities would continue to record loss in value, thereby hindering the growth of the securities market. He said investing in mutual fund would give investors opportunity for professional fund management by fund managers charged with the responsibility of providing them with in-depth research inputs from investment analysts.


Eze said the fund enables retail investors to invest in various instrument such that if one is failing, the other holds fit, so instead of putting all your eggs in one basket, it is now spread across many instruments that may not fall at the same time.


“The whole idea is to pull together the resources of small investors and be able to make a pool that would afford such investor the opportunity to invest in choice instrument. It is about creating a portfolio, a meek portfolio,” he said.


Also, the Managing Director Highcap Securities Limited, Mr. David Adonri, said mutual fund enables investors with shallow knowledge of investment to still invest wisely. Aside investing wisely, he said investors who don’t have enough resources could also invest in certain shares of their choice through mutual fund.




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