Introduction
Nigeria’s capital market has continued to evolve beyond traditional equities and fixed-income products, with increasing attention being given to alternative and structured investment products capable of offering investors diversification, liquidity, and broader market exposure. Among these products, Exchange Traded Funds (ETFs) have emerged as an increasingly important investment vehicle within both developed and emerging financial markets.
ETFs are pooled investment vehicles that trade on securities exchanges like ordinary shares while tracking the performance of indices, commodities, sectors, or baskets of underlying assets. Globally, ETFs have evolved into a multi-trillion-dollar market and have become an increasingly important component of modern investment strategy due to their liquidity, diversification, transparency, and relative cost efficiency. In Nigeria, ETFs represent a developing but increasingly significant segment of the capital market. According to data published by the Securities and Exchange Commission (SEC), ETFs recorded a combined Net Asset Value exceeding ₦16 billion as of September 2025. ETFs provide investors with a flexible and efficient mechanism for obtaining exposure to diversified asset portfolios while retaining the ability to trade those interests on a securities exchange in real time.
Although relatively recent within Nigeria’s broader financial ecosystem, ETFs are becoming increasingly important to the continued development and deepening of Nigeria’s capital markets. Their growing relevance reflects increasing investor sophistication, demand for diversified investment products, and broader participation within the Nigerian securities market by both institutional and retail investors. This article provides a comprehensive legal and regulatory overview of ETF investments under Nigerian law, examining their structure, governing framework, compliance requirements, taxation, risks, and future outlook.
The Concept and Structure of ETFs
ETF combine characteristics of both traditional collective investment schemes and publicly traded securities. On the one hand, they pool investor funds into a professionally managed investment portfolio; on the other hand, their units are listed and traded on a securities exchange like ordinary shares. This hybrid structure distinguishes ETFs from conventional mutual funds and contributes significantly to their liquidity, accessibility, and operational flexibility.
Under Rule 543 of the Consolidated SEC Rules 2013, ETF is defined as an undertaking which may take the form of:
i. a unit trust scheme;
ii. an open-ended investment company;
iii. any other such structure, as may be approved by the Commission, that issues unleveraged securities or units listed on a securities exchange recognized by the Commission that tracks the performance of a specified security or other assets which includes but is not limited to stocks, basket of assets, indices, commodity prices, foreign currency rates, or any other appropriate benchmark approved by the Commission from time to time.
In Nigeria, ETFs are commonly structured as unit trusts involving multiple regulated participants performing distinct legal and operational functions, including:
i. a Unitholder/Subscriber who invests in units issued by the fund,
ii. a Fund Manager responsible for investment decisions,
iii. a Trustee safeguarding investors' interests,
iv. a Custodian/Depository holding the underlying assets,
v. a Broker-Dealer executing contracts in securities as an intermediary;
vi. a Registrar maintaining the records of unitholders.
The interaction between these participants is intended to ensure operational efficiency, asset protection, regulatory oversight, and investor confidence within the ETF structure. Accordingly, ETFs are structured collective investment schemes that allow investors to gain exposure to diversified asset portfolios through a single tradable instrument listed on a securities exchange. Unlike traditional mutual funds, ETF units are traded throughout the trading day in the same manner as ordinary shares, thereby combining features of both investment funds and publicly traded securities.
Legal Framework for ETFs in Nigeria
The legal and regulatory framework governing ETF in Nigeria is primarily anchored on the Investments and Securities Act 2025 (ISA 2025), which serves as the principal legislation regulating securities, investments, and capital market activities in Nigeria. The ISA 2025 repealed the Investments and Securities Act 2007 and introduced reforms aimed at strengthening market regulation, improving investor protection, and aligning Nigeria’s capital market framework with evolving international standards and best practices.
ETFs, as regulated collective investment schemes traded on a securities exchange, operate within a multi-layered regulatory framework involving securities regulation, exchange governance requirements, fund management obligations, and trust law principles. This regulatory structure has contributed to the continued development of Nigeria’s ETF market, with the Nigerian Exchange Group (NGX) emerging as the leading ETF market in West Africa and one of the largest ETF markets in Africa by listed products, turnover value, and market capitalization .
The principal laws and regulations governing ETF investments in Nigeria include:
i. The SEC Rules and Regulations 2013, including all new rules and sundry amendments to the SEC Rules and Regulations (SEC Rules),
ii. Rules of the Nigerian Exchange Limited (NGX Rules),
iv. Companies and Allied Matters Act 2020 (CAMA),
v. Trustees Investment Act.
Registration of ETFs as a Unit Trust Scheme
The regulation of ETFs in Nigeria falls within the broader framework governing capital markets and collective investment schemes. ETFs are classified as ‘Specialized Funds’ under the SEC Rules. Rule 545(2) of the SEC Rules prescribe that “No person shall deal in the units of an ETF unless such units have been registered with the Commission”.
The following general requirements apply to the registration of ETFs in Nigeria in the form of a unit trust scheme:
i. An application for authorization of a scheme pursuant to the ISA, which is to be filed with the Commission together with the application for registration of the units of the scheme,
ii. A prospectus to be used, which shall contain the information specified in Rules 461 and 463 of the SEC Rules,
iii. A trust deed (two copies) to be printed and filed with the Commission.
The Role and Compliance Obligations of Key Participants in an ETF
1. The Fund Manager: The Fund Manager is responsible for the day-to-day management of the ETF portfolio, including investment decisions, asset allocation, and tracking the benchmark index. The Fund Manager therefore must:
a. be registered and licensed by the SEC as a capital market operator.
b. act in a fiduciary capacity, prioritizing investors’ interests.
c. ensure portfolio diversification and adherence to investment objectives.
d. maintain accurate valuation of assets and the estimated Net Asset Value (NAV) or Indicative Optimum Value (IOPV) calculation in accordance with the methodology stipulated in the offer documents.
e. submit periodic reports (quarterly/annual) to the SEC.
f. implement risk management, internal controls, and AML/CFT/CPF procedures.
2. The Trustee: The Trustee acts as a protector of investors’ interests, ensuring that the fund manager operates in accordance with the trust deed and regulatory requirements. The Trustee must therefore:
a. be independent of the fund manager.
b. ensure that the fund’s assets are used only for authorized purposes.
c. monitor compliance of the fund with the trust deed and SEC rules.
d. report breaches to the SEC and unit holders.
e. oversee distribution of income and corporate actions.
3. The Custodian/Depository: The custodian holds the underlying assets of the ETF in safe custody on behalf of investors. The Custodian must:
a. be SEC-registered and independent of the fund manager.
b. safeguard assets and ensure segregation from the manager’s assets.
c. settle trades and maintain accurate records of holdings.
d. ensure that creation/redemption of ETF units is properly backed by assets.
e. provide periodic reports to the trustee and SEC.
4. Authorised Broker-Dealers: They function as intermediaries to facilitate creation and redemption of ETF units and provide liquidity in the secondary market. Authorised Brokers-Dealers must:
a. be licensed broker-dealers under SEC rules.
b. maintain two-way quotes to support liquidity.
c. ensure fair pricing aligned with NAV.
d. comply with exchange trading rules and reporting obligations.
e. conduct KYC /AML checks on investors.
5. The Nigerian Exchange Limited (NGX): The relevant stock exchange which provides the trading platform on which the ETF units are listed and traded must:
a. ensure that ETFs meet listing requirements, including prior SEC approval.
b. monitor continuous disclosure obligations of ETF issuers.
c. enforce market surveillance and trading rules.
d. ensure price transparency and orderly trading.
6. Registrar (Transfer Agent): The Registrar maintains the record of unit holders and processes transfers, subscriptions, and redemptions. It must:
a. maintain accurate investor records.
b. ensure timely processing of transactions and distributions.
c. comply with data protection and reporting requirements.
7. The Auditor: The Auditor provides independent assurance on the financial statements of the ETF. The Auditor or audit firm must therefore:
a. conduct annual audits in accordance with applicable standards.
b. verify valuation, NAV accuracy, and financial disclosures.
c. report material irregularities to the trustee and regulators.
8. The Solicitor: The Solicitor advises on legal structuring, documentation, and compliance and:
a. ensures that the trust deed, prospectus, and contracts comply with SEC rules.
b. Supports regulatory filings and disclosures.
9. The Securities and Exchange Commission: SEC, as the apex regulatory body which oversees the operation of ETFs in Nigeria is charged with the following key responsibilities:
a. registration and authorization of ETFs and market participants.
b. continuous inspection, surveillance, and enforcement.
c. issuance of rules and circulars to ensure fair, efficient, and transparent markets.
d. enforcement actions including sanctions, fines, or suspension for breaches.
Protection for ETF Investors
As ETFs are increasingly adopted by retail and institutional investors, investor protection has remained a core regulatory objective of Nigeria’s capital market framework. ETFs in Nigeria operate within a multi‑layered protection regime involving legislation, regulatory oversight, market infrastructure, and disclosure requirements designed to safeguard investor interests. The ISA 2025 provides structural safeguards for investors such as the requirement for registration and authorization of ETFs, disclosure obligations and reporting standards. A few of these structural safeguards are briefly examined below:
a. Role Separation: A key investor protection mechanism in Nigerian ETFs is the mandatory separation of roles among market participants, viz: the Fund Manager, Trustee, Custodian, and Registrar. This reduces operational risk and ensures that no single party has unilateral control over investor assets.
b. Asset Segregation: ETF assets are legally and operationally segregated from the assets of the fund manager and other operators. In the event of insolvency or default by the fund manager, investors’ holdings remain ring‑fenced and protected from creditor claims.
c. Disclosure and Transparency Requirements: Investor protection is further enhanced through robust disclosure obligations. ETF issuers are required to publish:
a. a prospectus or scheme information/offer document in the required form approved by the SEC,
b. ongoing disclosures on portfolio composition,
c. daily or periodic NAV,
d. audited financial statements.
These disclosures enable investors to make informed investment decisions and monitor the performance and risk profile of ETFs on a continuous basis.
d. Listing and Trading Requirements of the Nigerian Exchange: All ETFs in Nigeria are required to be listed on a securities exchange registered by the SEC, primarily the NGX. Accordingly, ETF issuers are subject not only to SEC regulation, but also to the listing, trading, disclosure, and continuing compliance obligations imposed under applicable NGX Rules, including the NSE ETF Rules, for the Listing of Exchange Traded Funds on the Nigerian Stock Exchange, together with any subsequent amendments or regulatory directives. These rules impose continuing obligations relating to market transparency, orderly trading, periodic disclosure, and the timely dissemination of material information capable of affecting investor decision-making or market pricing. The NGX also retains supervisory and enforcement powers, including the authority to suspend trading in ETF units where necessary to protect market integrity or investor interests.
e. Clearing, Settlement and Depository Protection: ETF transactions are cleared and settled through Central Securities Clearing System Plc (CSCS), Nigeria’s licensed Central Securities Depository (CSD). CSCS provides:
a. electronic record‑keeping of investor holdings,
b. secure settlement and post‑trade services,
c. protection against loss or manipulation of ownership records.
This market infrastructure reduces settlement risk and strengthens investor confidence in ETF transactions.
f. The Investor Protection Fund: The ISA 2025 under Part XIV mandates any registered exchange in Nigeria to establish and maintain an Investor Protection Fund (IPF) to compensate investors who suffer pecuniary losses due to insolvency, revocation or cancellation of registration, fraud, or misconduct of dealing member firms. While ETFs are market‑risk instruments (and not capital‑guaranteed), the IPF offers a safety net where losses arise from operational failures rather than market movements.
Taxation of ETFs
While ETFs enjoy regulatory protection under the ISA 2025, their tax treatment is governed primarily by Nigeria’s consolidated tax framework, particularly the Nigeria Tax Act 2025 (NTA 2025). As ETFs operate as regulated collective investment schemes involving multiple layers of investment activity, their tax treatment requires consideration of both the structure of the ETF itself and the nature of returns earned by investors. Broadly, ETF taxation in Nigeria operates across three principal levels, including,
i. taxation at the fund level,
ii. taxation of distributions or investment income received by investors and
iii. taxation arising from the disposal or trading of ETF units by investors.
The tax treatment applicable to each of these levels is explained below
Taxation of ETFs as a Collective Investment Scheme: ETFs in Nigeria are usually constituted as unit trust schemes or open ended investment companies, which qualify as approved Collective Investment Schemes (CIS) under SEC rules. By virtue of Sections 27 and 63 of the NTA 2025, taxable profits of an authorized CIS shall be ascertained by taking the income accruing to the trustees from all the investments of the scheme and deducting therefrom sums disbursed as management expenses, including remuneration for the fund managers. Additionally, where the trustees of a CIS receive payments other than investment income from the scheme, and such payments qualify as taxable income, the tax deducted on such income shall constitute advance payment for income tax and shall be set off against the applicable income tax payable by the ETF for the relevant assessment period.
The NTA 2025 treats investment profits accruing to trustees of an ETF for distribution to unitholders as dividend payable to the shareholders of a registered company under CAMA. Accordingly, CIS are treated as companies for purposes of income tax. Taxes on such profits (dividend) therefore arise only at the point of distribution or at investor level, not within the fund. Dividends paid by Nigerian companies into the ETF typically suffer 10% (ten percent) withholding tax (WHT) at source. However, when such dividend income is further distributed by the ETF to investors, it qualifies as franked investment income, and no additional withholding tax applies to the investor. ETF investors therefore do not suffer double taxation on dividend income.
Interest Based ETF Distributions (Bond or Fixed Income ETFs): Interest income treatment depends on the nature of the underlying securities. Interest on FGN bonds and qualifying government securities remains exempt from income tax and withholding tax. ETFs investing predominantly in FGN bonds inherit this exemption at both fund and investor levels. Following renewed enforcement under the NTA 2025, interest on corporate bonds, treasury bills, and short term securities attracts 10% (ten percent) WHT, deducted at source. For individual investors, such WHT is typically treated as final tax.
Capital Gains Tax (CGT) on ETF Units: ETF units traded on NGX are treated as securities for tax purposes. Under Section 34 of the NTA 2025, capital gains arising from the disposal of stocks and shares whether listed on a Nigerian securities exchange are subject to 30% (thirty percent) tax as Capital Gains Tax (CGT). However, the aggregate disposal proceed threshold of N150,000,000 (One Hundred and Fifty Million Naira) and the N10,000,000 (Ten Million Naira) chargeable gain threshold within 12 (twelve) consecutive months, apply to ETF units listed and traded on NGX, as they constitute marketable securities. Accordingly, investors or unitholders trading ETFs on NGX need not pay CGT on chargeable gains less than N10,000,000 (Ten Million Naira), or on chargeable gains reinvested in the shares Nigerian companies regardless of the size of the gain.
Value Added Tax (VAT) Considerations: Investment income (dividends, interest, capital gains) is outside the scope of VAT. Management fees, brokerage commissions, and custodian fees may attract VAT, but such VAT is embedded in transaction costs rather than imposed directly on the investor.
Taxation of Foreign or Cross Border ETFs: Where a Nigerian tax resident invests in Foreign listed ETFs, or ETFs earning foreign source income, foreign dividends and gains are taxable in Nigeria on a worldwide income basis, subject to available double taxation relief. Foreign withholding tax may be credited in Nigeria, depending on treaty availability and documentation.
Conclusion & Recommendations
ETFs provide diversification and transparency but require due diligence on liquidity and costs. SEC ought to enhance investor education, broaden product categories, and strengthen enforcement of legislation. To curb challenges in the ETF market such as limited investor awareness, low market liquidity, regulatory bottlenecks, currency volatility, limited product diversity amongst others, ETF issuers with the assistance of their legal and financial advisers, can enhance investment opportunities by creating innovative ETF structures (sectoral, thematic, commodity‑based) which can deepen Nigeria’s Capital Market. While challenges remain, regulatory improvements and growing investor interest are likely to drive the expansion of ETFs in Nigeria. Legal practitioners, institutional investors, and policymakers must continue to engage with this asset class to unlock its full potential within the Nigerian financial system.
References
[1] SEC Nigeria, ‘2025 Monthly Net Asset Value forExchange Traded Funds Reports’ (2025) [2025Monthly NAV for ETF - Securities and Exchange Commission, Nigeria] accessed13th April 2026.
[2] The Nigerian Exchange, ‘Exchange Traded Funds’(2021) [ExchangeTraded Funds - Nigerian Exchange Limited] accessed 1st May 2026
[3] Anti-Money Laundering, Combatingthe Financing of Terrorism, and Combating Proliferation Financing.
[4] ‘Know Your Client’.
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