Recent reports by the Securities and Exchange Commission (SEC) show that there has been an increase in the total net asset value of CIS in Nigeria, from N782.64 billion in May 2019, to N1.322 trillion in May 2020. This is a clear indication that despite the coronavirus pandemic, investments made via CIS have maintained their profit yield. In today's newsletter, we provide a cursory overview of CIS in Nigeria.
2. What is a CIS?
According to the Investment and Securities Act, a CIS is a scheme or a company which invites members of the public to invest money or other assets in a portfolio and share the risk and benefit of investment in proportion to their participatory interest in the portfolio of the scheme. It is essentially a joint investment vehicle which allows investors to pool funds to invest in select securities, boost returns and minimize risk.
3. What types of CIS are available in Nigeria?
Under Nigerian law, there are five recognised types of CIS. They include Unit Trust Scheme, Venture Capital Funds, Open-ended Investment Companies, Real Estate Investment Schemes and Specialized Funds, with the most common type being Unit Trust Scheme. A Unit Trust Scheme is a fund into which individual investors or subscribers contribute small sums of monies to form a pool and enable professional fund managers invest in money market instruments, shares and stocks on their behalf.
4. How are Investors protected?
The provisions of the Securities and Exchange Commission 2013 Rules ("the Rules") along with the recently released Amendment to Rules on Collective Investment Schemes 2019 ("the Amendment") jointly ensure the protection of investors who wish to pool their funds into CIS and the accountability of fund managers. The Rules and the Amendment contain provisions which prevent self-dealing and ensure that interests of the investors are placed above those of the fund managers.
5. Who are the relevant parties to a CIS?
For every CIS, there is a relationship between key parties, which promotes a strong level of accountability and clarity.
- The Unit Holder/Subscriber
- The Fund Manager
- The Trustee
- The Custodian
- The Registrar
While the SEC has gone through commendable lengths to ensure proper accountability and transparency of the parties involved in CIS, attention should also be placed on the actions of digital players who operate CIS related platforms, in order to regulate them and ensure due process is followed in the handling of customers funds .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.