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How does the dollar mutual fund work?
How does the dollar mutual fund work?

Confused about how the dollar funds works and how you earn?

Ope avatar
Written by Ope
Updated over a week ago

Why keep your funds in a dorm account when you can invest it and get the benefits of having your funds in dollars?

Let's get to it. This is quite lengthy but very explanatory.

At the moment, what we do is buy and sell the USD on your behalf so you can fund your dollar-based mutual fund with the NGN. This is done based on the parallel market rates.

When you try to buy any dollar fund you'd see something like this.

Please note that the figures used are for example purposes, the real rates are what you see on the app per time.

The buy rate is the rate we buy on your behalf, so that's the amount you'd pay per dollar to buy the fund. For instance, if you want to buy $100 worth of the fund, you'd pay $100 X NGN540 = NGN54,000.

The sell rate is the rate at which a dollar is sold on your behalf when you want to redeem the fund. It is also the rate at which your dollar fund is valued in NGN. For instance, if you have $100 worth of the fund today, your value will be, $100 X NGN530 = NGN53,000 and if you decide to sell it, you get that amount.

Note that the rates are not constant, it fluctuates based on market performance.

The exchange rate appreciation is also a means of earning on the dollar-based mutual fund aside from the dollar earning on the fund.

Such that, if you buy at a particular rate and the dollar appreciates against the Naira, your NGN value increases. For instance, if you buy at NGN540/$1 and the sell rate increases to NGN560 in the future, you've gained NGN20 on every dollar you have in the fund.
The opposite is also possible, although, that has not been the case for a while now.

In all, the dollar fund is a long-term investment option. As you've noticed from the screenshot I shared, the sell price is lower than the buy price. So if you buy today and sell immediately, you'd have lost NGN10 on every dollar. However, in the long term, you stand to make impressive returns.
For instance, if you invested around August 2019 when the buy exchange rate of the dollar was about NGN380, you'd have gained about NGN160 on every dollar as of today.

Another way to earn is based on capital appreciation of the dollar fund.

After you invest in a fund you'll see something like this on the plan page. Every day, the price changes based on market trends and this can be easily monitored on the app. You earn when the sell price is higher than the buy price you invested at.

So, if you buy a unit of the dollar fund at $123.01 per unit and the sell price increases in the future to $124.00 per unit, you'd have gained $0.99 per unit.

Please feel free to chat with us if you have questions or need clarification.

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