One of our Community members ask:
Good day sir,
I want to understand how interest rates work in money market mutual funds in Nigeria.
For example:
If I invest ₦5,000 in a money market mutual fund when the interest rate is 20%
And later, the rate drops to 17%
My question is:
Will I still earn based on the 20% rate when I invested?
Or will my return change to the new 17% rate?
Does money market mutual fund in Nigeria have a fixed interest rate or a changing rate over time?
I am a beginner, and I want to understand how this works so I can make better investment decisions.
Thank you.
No.... you will not continue earning 20% simply because that was the rate when you invested. If you invest in a money market mutual fund when the yield is 20% and the fund’s yield later drops to 17%, your return will gradually adjust to the new prevailing rate. In other words, your earnings move witRead more
No…. you will not continue earning 20% simply because that was the rate when you invested.
If you invest in a money market mutual fund when the yield is 20% and the fund’s yield later drops to 17%, your return will gradually adjust to the new prevailing rate. In other words, your earnings move with the fund’s current yield over time.
This is because money market mutual funds in Nigeria do not have fixed interest rates. Their returns change based on market conditions because the fund manager continuously reinvests the pooled money into short-term instruments like treasury bills, fixed deposits, and commercial papers at whatever rates are available at the time.
So the 20% you see before investing is not a guaranteed locked-in return.
it is simply the fund’s current or recent annual yield.
In summary: money market mutual funds in Nigeria have changing returns, not fixed returns, so your earnings can go up or down depending on market interest rates.
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