This is a very good question, and it highlights a common misconception about money market mutual funds.
The key point is that fund managers do not magically create extra yield. The return paid to investors comes from the yield earned on the underlying investments, minus fees and expenses.
Why then do some Money Market Funds show 16%–20% returns?
There are several reasons:
1. The underlying instruments may actually be yielding more than 13%–15%
In Nigeria, money market funds typically invest in a mix of:
Treasury Bills
Commercial Papers
Bankers’ Acceptances
Fixed Deposits
Short-dated FGN securities
Cash and call deposits
At certain periods, especially when the Central Bank raises interest rates, these instruments can yield much more than 15%.
For example:
Instrument
Possible Yield
Treasury Bills
18%–25%
Commercial Papers
20%–30%
Fixed Deposits (institutional rates)
15%–22%
Because fund managers invest very large amounts, they often negotiate rates that ordinary retail investors cannot access.
2. Published returns are usually historical, not guaranteed
When you see:
“Current Yield: 18.5%”
or
“One-Year Return: 19.2%”
that is usually based on what the fund earned during a previous period.
If interest rates later fall, the fund’s yield will also fall.
3. The fund invests continuously
A money market fund is not a single Treasury Bill investment.
Every day:
New investors contribute money.
Existing instruments mature.
The manager reinvests into newer instruments.
This allows the portfolio to capture changing market rates over time.
4. Commercial Papers often boost returns
Many people focus only on Treasury Bills.
Suppose a fund invests:
40% in Treasury Bills at 18%
35% in Commercial Papers at 23%
25% in Fixed Deposits at 20%
The weighted average portfolio yield becomes roughly:
0.4(18%) + 0.35(23%) + 0.25(20%) =20.25%
After expenses, investors might receive around 19%.
5. Economies of scale
A retail investor with ₦100,000 may receive 15% on a fixed deposit.
A fund manager controlling ₦50 billion can negotiate substantially better rates from banks and issuers because of the volume involved.
A common misunderstanding
Many articles say:
“Money market funds invest in low-risk instruments paying 13%–15%.”
That description may have been accurate during a low-interest-rate period, but Nigerian interest rates have changed significantly over time.
When Treasury Bills, Commercial Papers, and institutional deposits are yielding 18%–25%, a money market fund can legitimately distribute annualized returns in the 16%–20% range without taking excessive risk.
What to check before investing
Instead of focusing on the advertised yield, look at:
Portfolio composition.
Net Asset Value (NAV) growth.
Expense ratio/management fee.
Historical consistency of returns.
Fund size and manager reputation.
For example, if a fund reports a 20% yield while most comparable Nigerian money market funds are around 15%, it is worth examining whether the fund is holding higher-yielding commercial papers or taking on additional credit risk.
In short, the extra return usually comes from a combination of higher-yielding short-term instruments, institutional bargaining power, and active portfolio management, not from the fund manager paying interest out of pocket.

Commercial Paper (CP) is a short-term unsecured loan issued by large companies to raise quick cash—typically for working capital (e.g., paying suppliers, salaries, inventory).
In Nigeria, CP is issued under programs regulated by the Securities and Exchange Commission Nigeria and often arranged by investment banks or dealers.
🔹 Key Characteristics
Tenor (duration): 15 days to 270 days
Issuer: Big, creditworthy companies (banks, corporates)
Return style: Usually issued at a discount (like T-bills)
Risk level: Low–moderate (higher than T-bills, lower than stocks)
Minimum investment: Often high (₦5M–₦10M+ for direct deals)
🔹 How Commercial Paper Works (Step-by-Step)
🧩 Step 1: Company Needs Cash
A company (e.g., a bank or FMCG firm) needs short-term funding.
👉 Instead of borrowing from a bank, it decides to issue CP.
🧩 Step 2: Set Up CP Program
The company registers a CP program with:
FMDQ Securities Exchange
And gets:
Credit rating (e.g., A, A+)
Issuing house (investment bank)
🧩 Step 3: Offer to Investors
The CP is offered to:
Institutional investors
High-net-worth individuals
Money market funds
👉 Usually through brokers or asset managers
🧩 Step 4: You Invest (At a Discount)
Example:
Face Value = ₦1,000,000
You pay = ₦920,000
Tenor = 180 days
👉 Your profit = ₦80,000
🧩 Step 5: Holding Period
No periodic interest payments
You simply wait until maturity
🧩 Step 6: Maturity Payment
At maturity, the company pays:
👉 Full face value (₦1,000,000)
Your return is the difference.
🔹 Where It Fits in the Money Market
Commercial Paper sits between:
Instrument
Risk
Return
Treasury Bills
Very Low
Lower
Commercial Paper
Low–Moderate
Higher
Corporate Bonds
Moderate
Higher (long-term)
👉 CP offers better returns than T-bills but with slightly more risk
🔹 How You Can Invest in Nigeria
Option 1: Through Asset Managers
Invest via Money Market Funds or fixed-income funds
Easier and lower entry
Option 2: Through Stockbrokers / Dealers
Direct CP purchase
Requires large capital
Option 3: Through Banks
Some banks offer CP deals to clients
🔹 Advantages
✅ Higher Returns
Usually better than T-bills and fixed deposits
✅ Short-Term
Flexible investment duration
✅ Good for Idle Cash
Useful for parking funds temporarily
🔹 Risks (Important)
⚠️ 1. Credit Risk
Not government-backed
If company fails → risk of default
👉 Always check credit rating
⚠️ 2. Liquidity Risk
Harder to sell before maturity
⚠️ 3. Minimum Entry Barrier
High capital required for direct investment
🔹 Real Example Scenario
You invest:
₦5,000,000 in CP
At ~15% annualized return
For 180 days
👉 Profit ≈ ₦375,000
🔹 Smart Strategy
Use CP when:
You want better returns than T-bills
You can lock money for a few months
You trust the issuer’s credit quality
🔹 Pro Tip (Very Important)
If you’re not investing millions:
👉 Use Money Market Mutual Funds
They already invest in CP and:
Reduce risk (diversification)
Allow small entry (₦5k – ₦50k)