Can I lose money when I invest in a Money Market Fund or a Balanced Fund?

Yes, you can lose money in both a Money Market Fund and a Balanced Fund. A Money Market Fund is generally lower risk, while a Balanced Fund can have bigger rises and falls. Neither automatically guarantees your money.

Think of two traders: one mainly buys goods with fairly steady prices; the other mixes those goods with items whose prices change often. Both can face losses, but their risks are different.

How you could lose money in a Money Market Fund

A Money Market Fund pools investors’ money and puts it into short-term investments, such as Treasury bills, bank deposits and commercial papers—short-term loans to companies.

Its main aim is to preserve your money while earning income. But low risk does not mean no risk:

• A bank or company the fund invests with could fail to repay.
• In difficult conditions, the fund could suffer losses or face delays getting cash to meet withdrawals.
• Fees or early-withdrawal charges, where applicable, can reduce what you receive. Check the particular fund’s terms.

Also, a lower return is not the same as losing your original money. If the fund’s earning rate falls, your money may simply grow more slowly.

How you could lose money in a Balanced Fund

A Balanced Fund mixes investments, usually shares, bonds and money market instruments. The exact mix depends on the fund.

Shares can fall when businesses struggle or investors become less willing to pay for them. Bond prices can also fall, including when market interest rates rise. Putting them together spreads risk, but does not remove it.

For example, suppose you invest ₦100,000 and the value of your fund units falls to ₦92,000. Your investment is now worth ₦8,000 less. If you withdraw everything at that value, you receive roughly ₦92,000 before any applicable charges.

Not withdrawing does not mean there is no loss. It means you still hold the investment despite its fall in value. It may recover, but recovery is not guaranteed.

There is another loss to watch in both funds: loss of buying power. Your balance can grow while the prices of food, transport and other things grow faster. You have more naira, but that money buys less.

Before choosing, read the fund’s factsheet and offer document. Check what it invests in, its fees, withdrawal terms and whether any capital guarantee actually exists. Verify the fund and manager’s registration with SEC Nigeria—but remember that registration is not a promise against losses.

For money you will need soon, a suitable Money Market Fund is generally a better fit than a Balanced Fund. A Balanced Fund is more suited to money you can leave invested for several years and whose value you can tolerate seeing fall along the way.