Nigeria's Fixed Income Funds: Why Yields of Up to 22% Are Possible

Introduction

Fixed income funds in Nigeria are delivering attractive yields of 10-22%, significantly exceeding traditional savings account returns of 5-10%. This explainer breaks down what is fixed income, how fixed income investment works, why competitive yields persist in today's market, and whether these fixed income securities can sustain performance as economic conditions evolve.

Table of Contents

• What is Fixed Income
• How Fixed Income Funds Work
• Why Current Yields Remain Attractive
• Types of Fixed Income Instruments
• Fixed Income Fund vs Money Market Fund
• Top Fixed Income Funds in Nigeria
• Who Should Invest
• Risks to Consider
• FAQs

What is a Fixed Income Fund?

Fixed income meaning refers to investments paying predictable returns at regular intervals. Unlike stocks where dividends fluctuate, fixed income securities promise specific interest payments (coupon payments) on predetermined dates. Think of it as lending money to governments or companies that agree to pay you fixed interest periodically plus return your principal at maturity.

The "fixed" part means the interest rate is predetermined. If you buy a ₦1 million bond paying 18% annually, you receive ₦180,000 yearly regardless of whether the issuer's business thrives or struggles. This predictability makes fixed income investment attractive to conservative investors prioritizing capital preservation over growth.

Fixed income instruments include government bonds, corporate bonds, treasury bills, commercial papers, and banker's acceptances. Fixed income funds pool investor money buying diversified portfolios of these securities, providing instant diversification and professional management individuals cannot achieve independently.

How Fixed Income Funds Work

Fixed income funds are mutual funds investing exclusively in debt securities. Fund managers purchase bonds with varying maturities, credit ratings, and yields, creating balanced portfolios targeting specific return and risk profiles.

The Mechanics

Portfolio Construction: Managers allocate across government bonds (FGN bonds, treasury bills), corporate bonds (Access Bank, Dangote, MTN bonds), and occasionally international securities (Eurobonds).

Income Generation: Each bond in the portfolio pays periodic interest (monthly, quarterly, or semi-annually). The fund collects all interest payments, deducts management fees (typically 1-2% annually), and distributes net income to unit holders.

NAV Calculation: Daily Net Asset Value (NAV) reflects total portfolio value divided by outstanding units. NAV changes based on interest received and bond price fluctuations. When you invest ₦100,000 at ₦1.00 NAV, you own 100,000 units. If NAV grows to ₦1.20 over a year (20% return), your investment is worth ₦120,000.

Liquidity: Unlike buying individual bonds requiring ₦1 million+ minimums and holding until maturity, fixed income funds offer daily liquidity. Investors redeem units within 3-7 business days receiving current NAV value.

Returns Come From Two Sources

Interest Income: Coupon payments from underlying bonds provide steady cash flow distributed to investors monthly or quarterly.

Capital Appreciation: Bond prices rise when interest rates fall, increasing NAV. Conversely, rising rates decrease bond prices and NAV. This price volatility distinguishes fixed income funds from money market funds maintaining stable NAV.

Why Current Yields Remain Attractive

Central Bank Policy Environment

The Central Bank of Nigeria maintained elevated policy rates through most of the year before cutting the Monetary Policy Rate (MPR) by 50 basis points to 27.00% in September, then holding steady in November. This elevated rate environment forces all interest rates upward. Government bonds currently yield 13-17% compared to 8-12% historically. Corporate bonds offer 16-22% reflecting higher credit risk.

Fixed income securities issued in this environment lock in these elevated rates for their full maturity. A 5-year FGN bond issued at 16% pays that rate for five years, even if rates decline later. Fixed income funds buying these bonds capture competitive yields for their portfolios.

Improved Inflation Dynamics

Following Nigeria's CPI rebasing in early 2025, inflation has declined significantly. Current inflation stands at 14.45% (November 2025), down from over 30% under the previous methodology. This represents the eighth consecutive month of declining price pressures, helped by stronger harvests and currency stabilization.

With inflation moderating while bond yields remain elevated from the previous high-rate cycle, fixed income funds now offer positive real returns for the first time in years. Investors can genuinely preserve purchasing power while earning competitive nominal returns.

Government Fiscal Requirements

Nigeria's federal government continues substantial borrowing to fund budget requirements. FGN bond issuances remain significant, providing regular investment opportunities. High demand for inflation-beating returns combined with government financing needs supports attractive yields across the curve.

State governments also borrow through bonds financing infrastructure projects. Lagos, Rivers, and Kaduna states issue bonds at competitive yields attracting fixed income investments.

Corporate Funding Dynamics

Banks and corporations seeking capital through bond markets face substantial rate pressures. Access Bank, Zenith Bank, Dangote Cement, and MTN Nigeria issue corporate bonds at 16-22% yields depending on credit rating and maturity.

These companies accept elevated borrowing costs because alternative funding (equity dilution, bank loans) remains expensive. Fixed income fund managers purchasing these corporate bonds deliver attractive yields to unit holders.

Types of Fixed Income Instruments

Government Securities

FGN Bonds: Sovereign debt with 5–30-year maturities, currently yielding 13-17%, zero default risk (government backs obligations), semi-annual interest payments, minimum ₦100,000 investment.

Treasury Bills: Short-term government debt (91, 182, 364 days), currently yielding 16-18%, tax-free returns, purchased at discount to face value, highly liquid secondary market.

Sukuk: Sharia-compliant government bonds, profit-sharing structure replacing interest, similar yields to conventional FGN bonds, Islamic finance principles.

Corporate Bonds

Bank Bonds: Issued by Access Bank, GTBank, Zenith Bank, yields 16-20%, rated AA to AAA typically, funding Tier 2 capital requirements, 3–7-year maturities.

Corporate Bonds: Issued by MTN Nigeria, Dangote, Nestle, yields 18-22%, credit risk varies by issuer, rated from BBB to AA, 5–10-year maturities.

Commercial Papers: Short-term corporate debt (30-270 days) yields 16-20%, issued by blue-chip companies, funding working capital, higher minimums (₦1 million+).

International Securities

Eurobonds: Dollar-denominated FGN bonds traded internationally, yields 7-10% in dollars, hedge against naira depreciation, longer maturities (10-30 years), minimum $200,000 typically.

Fixed Income Fund vs Money Market Fund

Key Differences

Investment Horizon:

Money market funds invest in securities under 1 year maturity (treasury bills, commercial papers under 365 days)

Fixed income funds invest in bonds with 1–30-year maturities

Volatility:

Money market fund NAV remains stable (approximately ₦1.00), minimizing capital risk

Fixed income fund NAV fluctuates based on interest rate changes and bond prices

Returns:

Money market funds currently yield 18-22%

Fixed income funds deliver 10-22% with potential capital gains/losses

Interest Rate Sensitivity:

Money market funds adjust quickly to rate changes, reinvesting in higher-yielding securities as old ones mature

Fixed income funds lock in rates longer, benefiting if rates fall (bond prices rise) but suffering if rates rise (bond prices fall)

Liquidity:

Money market funds redeem 24-48 hours

Fixed income funds redeem 3-7 business days

Which Should You Choose?

Choose Money Market Funds When:

• You need emergency fund liquidity (access within 24-48 hours)
• Interest rates are rising (money market funds adjust faster)
• You prioritize stable NAV over maximum returns
• Investment horizon is under 2 years

Choose Fixed Income Funds When:

• You can commit funds for 2-5 years
• Interest rates appear to have peaked (locking in competitive rates before cuts)
• You want diversification beyond money market instruments
• You accept moderate NAV volatility for potentially higher returns
• You seek professional bond selection and credit risk management

Many investors use both: money market funds for emergency reserves and short-term goals, fixed income funds for medium-term goals (3-5 years) where locking in current yields makes sense.

Some of the Top Fixed Income Funds in Nigeria

United Capital Stable Income Fund

Yield: 21.89% annual returns (Q3 2025 YTD)

Strategy: Strategic positioning across high-grade corporate bonds and FGN securities with active portfolio management

Assets: ₦32.9 billion managed for 710 investors

Minimum: ₦25,000

Redemption: 3-5 business days

Best For: Investors seeking top-tier fixed income returns with professional management

ARM Short Term Bond Fund

Yield: 16.02% holding yield (September 2025)

Strategy: Conservative allocation to shorter-duration government securities and investment-grade corporate bonds (average duration 0.98 years)

Assets: Strong institutional backing from ARM Investment Managers

Minimum: ₦10,000

Redemption: 24-72 hours

Best For: Conservative investors wanting lower interest rate risk through shorter durations while earning competitive yields

ARM Sharia Compliant Fixed Income Fund

Yield: 17.65% holding yield (September 2025)

Strategy: Investments in Sovereign Sukuk and Sharia-compliant fixed income instruments (average duration 4.54 years)

Assets: ₦1.26 billion under management

Minimum: ₦10,000 (Retail)

Redemption: Standard redemption terms

Best For: Muslim investors and those seeking ethical investment options with competitive returns

Coronation Fixed Income Fund

Strategy: Balanced mix of FGN bonds, corporate bonds, treasury bills and other money market securities

Approach: Active portfolio management focusing on capital preservation and income generation

Minimum: ₦10,000

Best For: Investors wanting diversified fixed income exposure with established fund manager

AIICO Fixed Income Products

Strategy: Fixed income investments through AIICO's GIN (Guaranteed Income Note) product line

Approach: Focus on capital preservation with competitive interest rates

Rating: A+ rated by GCR (Global Credit Rating)

Minimum: ₦10,000

Redemption: 5 working days

Best For: Investors seeking insurance-backed fixed income solutions with strong credit ratings

Who Should Invest

Ideal Investor Profiles

Pre-Retirees (Ages 50-60): Need income generation and capital preservation. Fixed income funds deliver predictable returns without stock market volatility. 60-70% allocation to fixed income funds balanced with 30-40% in money market funds provides a retirement-ready portfolio.

Medium-Term Savers (3-5 Year Goals): Saving for home down payment, business startup, or children's education. Fixed income investments lock in current competitive yields beating money market funds over medium horizons.

Conservative Investors: Risk-averse individuals uncomfortable with equity volatility. Fixed income meaning includes predictable returns appealing to those prioritizing capital preservation over maximum growth.

Income-Focused Portfolios: Investors needing monthly/quarterly cash distributions. Fixed income funds distribute interest income regularly supplementing salaries, pensions, or business income.

Diversification Seekers: Those with equity-heavy portfolios adding fixed income instruments balances risk. 40-60% allocation to fixed income funds reduces overall portfolio volatility while maintaining inflation-beating returns.

Investment Amounts

Small Investors (₦10,000-₦100,000): Access professionally managed fixed income investments previously requiring ₦1 million+ for direct bond purchases.

Medium Investors (₦100,000-₦1 million): Build diversified fixed income portfolios across multiple funds (FBN for safety, United Capital for growth, ARM for Sharia compliance) without individual bond research.

Large Investors (₦1 million+): Combine direct bond holdings with fixed income funds, utilizing funds for diversification and liquidity alongside higher-yielding direct positions.

Risks to Consider

Interest Rate Risk

If CBN cuts MPR significantly (e.g., from 27.00% to 22%), new bonds are issued at lower yields and existing bonds may lose market value. Your fixed income fund NAV could decline 3-8% as bond prices adjust. This risk is highest with longer-duration bonds (10+ years) and lowest with shorter maturities (1-3 years).

However, with rates currently elevated and inflation moderating, the trend suggests potential rate cuts ahead:meaning existing higher-yielding bonds in fund portfolios become more valuable.

Mitigation: Choose funds with shorter average duration (2-5 years vs 10+ years), accept moderate duration for better yield, understand this risk is offset if holding to maturity.

Credit Risk

Corporate bonds carry default risk. If an issuer such as Access Bank experiences financial distress, its bonds may lose value or, in extreme cases, default entirely. Fixed income funds investing heavily in single issuer or low-rated corporate bonds face credit losses.

Mitigation: Select funds with diversified holdings across 15+ issuers, prioritize funds holding government securities (zero credit risk) and AAA-rated corporates, check fund fact sheets for top holdings and credit quality.

Inflation Risk

Despite competitive 10-22% yields, fixed income investments must stay ahead of 14.45% inflation to preserve purchasing power. While top performers now beat inflation by 3-8 percentage points, rising inflation could erode real returns.

Mitigation: Combine fixed income funds with equity exposure capturing growth offsetting inflation, consider Eurobond funds delivering dollar returns, use fixed income funds for medium-term goals not long-term wealth building.

Liquidity Risk

Fixed income funds require 3–7-day redemptions versus money market funds' 24–48 hours. During market stress, redemption delays could extend.

Mitigation: Maintain emergency reserves in money market funds separately from fixed income investments, only invest money you won't need within 6 months, ladder investments across multiple maturities.

Regulatory Risk

Government could impose capital controls, restrictions on foreign currency bonds, or taxation changes affecting returns. Withholding tax (10% on interest income) already reduces net yields.

Mitigation: Stay informed on regulatory changes, diversify across domestic and international fixed income securities, and accept taxes as cost of investing.

FAQs

What Is Fixed-Income Investment?

Fixed-income investing means buying securities that pay predetermined interest regularly: government bonds, corporate bonds, treasury bills, or funds holding these instruments. Returns come from periodic interest payments and potential capital gains if bond prices rise.

Are Current Yields Sustainable Long Term?

Not at current levels. As inflation moderates and the economy stabilizes, CBN will likely cut rates further, pushing yields toward 10-15%. However, bonds purchased today lock in their rates for full maturity. A 5-year bond bought at 18% pays that rate for five years, even if new bonds later yield 12%.

Should I Choose Fixed Income Fund or Money Market Fund?

Money market for emergency funds and goals under 2 years (18-22% yields, 24-48 hour access). Fixed income for 2+ year commitments when you want to lock competitive rates and accept moderate NAV changes for 10-22% returns. Most investors use both.

Can Fixed Income Beat Inflation in Nigeria?

Yes. Top funds yielding 18-22% beat 14.45% inflation by 3-8 percentage points. Even conservative 12-15% funds approach inflation, far exceeding 5-10% savings rates.

What Are the Main Risks?

Interest rate risk (NAV drops if rates fall), credit risk (corporate defaults), inflation risk (yields must beat 14.45%), and liquidity (3-7 day redemptions). Choose diversified funds and keep emergency money separate.

Conclusion

Fixed income funds offer compelling alternatives to savings accounts, delivering 10-22% yields versus typical 5-10% savings rates. Use nairaCompare to compare offerings and review fund fact sheets showing historical returns, portfolio holdings, and fees. With top funds now beating 14.45% inflation while providing professional management and diversification, fixed income investments balance stability and growth for medium-term financial goals.

This content does not constitute financial or investment advice. Readers should review fund prospectuses, understand associated risks, verify current yields, and consult qualified financial advisors before investing in any fixed income products.