Looking for Low-risk Investment Options in Nigeria? See Five Comprehensive List:
A low-risk investment is an investment option in which the chances of losing an investor’s money are low. This does not mean that low-risk investments are 100% safe; it means that the possibility of losing your capital is slim.
The flip side of low-risk investments is that the profit margin or Returns on Investment (ROI) is usually low. However, these options will serve you better than to just leave your money lying fallow in your bank account.
If you invest in these options mentioned below, over time, you will build a substantial income. One good way to make out something from low-risk investments is to reinvest your profits for a while.
- Mutual Funds
Mutual fund is a collective capital from various investors which is invested in diverse investment options like stock, bonds and treasury bonds. In other words, the investors’ money is used to build an investment portfolio. The profit from the investment is divided among the investors on a timely basis which could be bi-annually or annually. There are different types of mutual funds which include;
- Equity Funds: With equity funds, investors’ funds are invested in stocks of companies traded on the Nigerian Stock Exchange (NSE). It has a higher level of risk than other types of mutual funds, but in turn the returns are higher.
- Fixed-Income Funds: Investors’ money is invested into a portfolio that earns a fixed profit for a period of time. That is, there is no fluctuation in the profit and it is usually in percentage. A good example is treasury bonds. This type of equity funds is usually the safest.
- Mixed-Income Funds: Investors’ money is invested in both equity and fixed-income funds. It is used to diversify investors’ portfolio and cushion risk. A part of the capital is invested in equity funds to get a high profit returns while the rest is invest in fixed-income funds to cushion the risk of equity funds.
You can invest in mutual funds with as low as N10,000. The returns defer depending on the investment firm handling the portfolio. To get started, visit any investment firm or the investment section of any bank and request for a mutual fund form.
- Fixed Deposit:
This is another popular low-risk investment option available to Nigerians. The idea is to deposit money for a fixed period in return for interest. Fixed deposit can be long-term or short-term.
A short-term deposit matures usually within 30 to 90 days, while long-term deposits can last for up to 2 years. Most banks offer fixed deposit savings option. The interest rate depends on the bank, amount you fix and the maturity period. But usually, it’s 4% to 8% interest rate.
Most banks request for at least N100,000 as the initial deposit to open a fixed deposit bank. To open a fixed deposit account, visit the customer section of any bank near you and request the fixed deposit account form.
- Federal Government Savings Bond:
Whenever the Federal Government wants to finance some projects, one way it raises funds is through bonds. When you invest in FG savings bond, you are lending money to the Federal Government of Nigeria for a period of time.
The Federal Government offers its savings bonds through the Debt Management Office. The investor is called the bondholder and the money you invest is called the principal. The Federal government is under obligation to pay back the bondholder’s principal and interest as agreed.
This type of investment is considered the safest because government rarely defaults in meeting its obligation to pay. The minimum amount to invest is N10, 000, while the maturity period ranges from 2 years to 20 years. The Federal government pays a fixed interest usually in percentage bi-annually.
There are two ways to invest in FG savings bonds; through a Primary Dealer (PD) and Money Markers (MM). The PD and MM are brokers, investment firms and banks. Visit any of them and pick a form for FGN savings bond.
- Treasury Bills:
A Treasury bill is similar to the FG savings bonds in that it is another way the government raises money to finance its projects. The difference is that Treasury bill is sold through the Central Bank of Nigeria (CBN).
CBN conducts an auction for the Treasury bill bi-weekly for interested investors to bid. The auction is published on CBN’s website. Before now, the minimum amount you can invest in Treasury bill was N10,000, but it was increased to N50,000 since 2017.
Since there is a bid for Treasury bill, the interest rate or bit rate for one investor can differ from that other another investor. The maturity period for Treasure bill defers but it’s usually shorter than that of FG Savings Bond.
The maturity period can be 91 days, 182 days or 364 days. Also, you can sell your Treasury bill before its maturity date. To invest in Treasury bill, approach your bank and request for a form to invest in T.B. You can’t reinvest your earnings automatically at maturity. You have to instruct your bank to invest on your behalf.
- Real Estate Investment Trusts (REITs):
Real estate is generally a profitable investment option, but the problem is that most people don’t have the large capital requirement to buy land and build. One easy and cheaper way to invest in real estate is through REITs.
What is REITs? REIT is an investment option in which investors’ pool money into a trust. The trust managers invest the money into real estate. The funds can be used to purchase houses or build houses.
The dividend realized is shared among investors. REITs are traded in the NSE. You can invest through an accredited stockbroker or dealers; that is investment firms. There is no minimum investment to start REITs. There are three types of REITs:
- Equity REITs: The funds are used to buy rental and commercial properties.
- Mortgage REITs: The funds are given out as a loan for mortgage in properties. The properties are held as collateral for the loan. Profit is realized from the interest from the loan.
iii. Hybrid REITs: This is a combination of both equity REIT and mortgage REIT.