As Nigerians navigate financial shifts and market fluctuations in 2024, there’s a heightened quest for safe and rewarding short-term funding positive factors.
Amid quite a few choices, traders should strategically discover short-term funding avenues.
Brief-term funding choices check with monetary devices that may assist traders generate returns on their preliminary funding inside a comparatively transient interval, sometimes as much as a most of three years.
The first purpose of short-term investments is to capitalize on alternatives that supply comparatively faster liquidity and doubtlessly larger yields inside a shorter timeframe.
Nairametrics has diligently monitored a few of the accessible choices in 2024. This overview seeks to equip Nigerian traders with insights, empowering them to make knowledgeable and astute funding selections.
10. Industrial papers
Commercial papers, short-term debt devices issued by companies to boost operational capital, function a most tenor of 270 days and a hard and fast rate of interest referred to as the low cost fee.
These papers, engaging funding choices, typically yield larger rates of interest in comparison with CBN-issued treasury payments.
Past the interesting returns, they boast brief maturity intervals. Usually issued by credit-worthy Nigerian firms, their credibility is affirmed by credit standing businesses.
In 2023, MTN Nigeria raised about N375 billion by way of seven issuances of business papers, with rates of interest starting from 10.41% to 14.33%. Dangote Cement additionally raised N221 billion by way of business papers in numerous issuances whose rates of interest ranged between 9.31% and 12.70%.
Additionally learn: Nigerian companies raised N1.5 trillion through commercial papers in 2023 – Nairametrics
9. Nigerian Treasury Payments
Nigerian Treasury Bills (NT-Payments) symbolize short-term debt devices issued by the Central Financial institution of Nigeria (CBN) on behalf of the Federal Authorities, that includes 3-month, 6-month, and 12-month maturity charges.
Serving twin roles, these payments act as devices for the Federal Authorities to finance finances deficits and as a financial coverage instrument by the CBN to manage inflationary pressures.
The credit standing of the Federal Authorities backs them, rendering them risk-free.
NT-bills are supplied by way of biweekly main market auctions on Wednesdays, with a minimal funding of N50,001,000. Following the public sale, the payments enter the secondary market on FMDQ, operational Monday to Friday (10 am-4 pm).
Rates of interest, decided on the public sale primarily based on obtained bids are depending on the vary of bids obtained by the CBN. For instance, the vary of bids on the 91-day payments over the past set of NT-Payments auctions in 2023 was between 3.3% and 17.01%.
Nonetheless, the CBN set a cease fee at 7%, that means solely bids between 3.3% and seven% can be allowed to put money into these payments at an rate of interest of seven%.
The rates of interest fluctuate with short-tenured T-bills (91-day) sometimes providing decrease charges, whereas long-tenured payments (364-days) present larger rates of interest.
Throughout the December 27, 2023, public sale, 91-day payments had an rate of interest of seven%, 182-day payments, 10%, and the 364-day payments, 12.5%.
8. FGN Saving Bonds
FGN Saving Bonds are short-term bonds issued by the Federal Authorities each month by way of the Debt Administration Workplace.
These bonds are backed by the total religion and credit score of the Federal Authorities of Nigeria. In contrast to T-bills and common FGN bonds, FGN Saving Bonds are channelled in direction of smaller traders.
These bonds have a maturity interval of two years and three years, and coupon funds are made quarterly (i.e. 4 instances in a yr).
FGN Saving Bonds sometimes obtain much less consideration than FGN Bonds and NT-bills as a result of they’ve comparatively decrease efficient yields than different FGN-backed bonds.
For instance, the 2-year FGN Financial savings Bonds issued in December 2023 had an efficient yield of 12.464%. Whereas the 364-day NT-bills issued on December 27 had an efficient yield of 12.5%.
They’re extra open to smaller traders as subscriptions because the minimal subscription quantity is N5000, whereas the utmost subscription quantity is N50,000,000.
7. Cash market Mutual Funds
Money Market Funds symbolize a low-risk short-term funding class, typically managed by asset administration corporations beneath the regulatory oversight of the Securities & Trade Fee (SEC).
These funds predominantly put money into low-risk cash market devices equivalent to treasury payments, business papers, and financial institution deposits, making certain a low-risk profile.
In adherence to prevailing laws, no instrument inside a cash market fund is anticipated to have a maturity date exceeding 364 days, with the funds themselves sometimes maturing inside 90 days.
6. Equities
Equities emerge as a serious short-term funding choice, presenting the potential for speedy positive factors. In a beneficial market local weather, inventory costs exhibit dynamic fluctuations, providing short-term traders alternatives to capitalize on swift worth actions and generate fast income.
The excessive liquidity of shares facilitates swift entry and exit for short-term traders, permitting them to leverage short-term market shifts.
Notably, on the NGX, shares like Infinity Belief Mortgage Financial institution (INFINITY) have already recorded a 33% acquire in 2024.
Transcorp Lodge exhibits a 20.9% acquire, Sterling Financial institution boasts a 34.5% improve, and Transnational Company (TRANSCORP) has surged by 46.2% in the identical interval.
These spectacular figures underscore the potential positive factors achievable. Inside only a week in 2024 on the NGX, the market skilled a noteworthy appreciation of over 5%, highlighting its extremely liquid nature.
5. Cryptocurrencies
Cryptocurrency, in contrast to some conventional short-term funding choices, may be thought-about a short-term funding as a result of its potential for fast worth actions. Nonetheless, it comes with a major caveat: it’s a notably dangerous selection.
The liquidity in the crypto market and its high volatility make it liable to speedy worth swings, providing alternatives for short-term positive factors but in addition carrying substantial dangers.
To supply context, on January 1, 2024, 1 Bitcoin (BTC) was buying and selling at $42,700 as of 11.45 am, nevertheless, in lower than 24 hours, it appreciated by 7% to hit $45,665. And 24 hours later, on January 3, it dropped to $42,300.
The volatility of cryptocurrencies makes them a extremely dangerous however extremely worthy short-term funding choice. For instance, within the final twelve months, bitcoin has appreciated by over 150% shifting from about $17,000/BTC to $44,000/BTC throughout the interval.
Traders should perceive that whereas crypto can yield fast income, it’s important to be cautious as a result of unpredictable nature of this market.
4. Foreign money Buying and selling (Foreign exchange Buying and selling)
Foreign money buying and selling, also called Forex trading, is one other avenue for short-term investments, providing the potential for substantial positive factors inside a comparatively transient interval. In Foreign currency trading, traders speculate on the value actions of various currencies in opposition to one another. Merchants intention to revenue from fluctuations in trade charges, making the most of short-term worth actions.
The attraction of Foreign currency trading lies in its potential for prime returns as a result of leverage and the power to commerce across the clock. Brief-term merchants in Forex typically capitalize on small worth actions, leveraging their positions to amplify potential positive factors.
Nonetheless, Foreign currency trading comes with a major caveat: it’s inherently dangerous. The excessive leverage accessible in Foreign exchange markets magnifies each income and losses, making it potential to achieve or lose a considerable quantity of capital shortly.
3. P2P Lending
Peer-to-Peer (P2P) lending serves instead short-term funding avenue the place people lend cash on to debtors by way of on-line platforms, bypassing conventional monetary establishments.
Traders in P2P lending platforms earn returns by way of the curiosity charged on the loans they fund. The platforms assess debtors’ creditworthiness and assign an rate of interest primarily based on threat, permitting traders to decide on loans primarily based on their threat tolerance and funding targets.
A number of the lending platforms that permit P2P lending in Nigeria embrace FINT, P2Vest, SukFin, and KiaKia, amongst others.
Nonetheless, P2P lending carries sure dangers. Whereas platforms typically carry out credit score checks, there’s a threat of debtors defaulting on their loans, impacting traders’ returns. Moreover, P2P lending may lack liquidity as withdrawing funds earlier than the mortgage time period ends may be difficult.
2. Fastened Deposit Accounts
Fastened Deposit Accounts (FDs) are a preferred short-term funding choice supplied by banks the place traders deposit a lump sum for a predetermined interval, sometimes starting from a number of months to some years, at a hard and fast rate of interest.
As a short-term funding, FDs supply a safe and comparatively low-risk option to earn curiosity on idle funds.
Fastened deposit accounts often have a minimal and most tenure, for instance, in UBA, the minimal and most tenure are 30 days and 180 days respectively.
FDs could have limitations equivalent to penalties for early withdrawals and comparatively decrease returns in comparison with riskier funding choices like shares or mutual funds.
1. Trade-Traded Funds (ETFs)
Exchange-Traded Funds (ETFs) are funding funds that commerce on inventory exchanges, just like particular person shares. They’re a set of securities—equivalent to shares, bonds, commodities, or a mixture of belongings—designed to trace the efficiency of a selected index, sector, or asset class.
In contrast to Mutual Funds, ETFs are purchased in shares, and their costs are typically extra inexpensive, making them accessible to traders with smaller quantities to speculate.
ETFs can function short-term funding choices as a result of they commerce on inventory exchanges, permitting traders to purchase and promote them all through the buying and selling day at market costs. This liquidity gives flexibility for short-term traders who could must entry their funds shortly.
On the NGX, there are 12 ETFs at the moment buying and selling, and the best performer amongst them, the SIAML PENSION ETF 40 appreciated by about 616% in 2023 alone.
The STANBIC IBTC ETF 30 additionally appreciated by 192.65% in 2023 alone, reflective of the sort of positive factors that ETFs can produce inside a yr.
