Sunday, 28 April 2013

How To Invest in Mutual Funds and Which One is the Best For You


A mutual fund is an investment company that pools money from different investors and invest money in various securities depending on the investment objective of the fund. For as low as Php 5,000, a person can already start investing in mutual funds. In addition to that, you don't have to bother trying to learn the ins and outs of a mutual fund investment because your money is managed by a professional fund manager who would do the research, the trading, and monitoring all these investments for you to ensure that they will maximize your money's earning potential.


What are the different types of mutual funds?

The are 4 basic classification of peso-market mutual funds. Here they are:

1. Money Market Fund - invested purely in short-term debt instruments, special savings, short-term bonds usually in a span of one year or less

2. Bond Fund - invested in long-term debt instruments of the Philippine government or corporations like fixed-income securities longer than a year

3. Balanced Fund - invested in a combination of debt instruments and shares of stock of Philippine companies 

4. Equity Fund -  invested primarily in the Philippine stock market


Before investing in a mutual fund, consult a licensed mutual fund representative so they can carefully assess your risk appetite and assist you in your financial planning. Ask him/her to recommend you the appropriate mutual funds based on your financial goals, risk appetite and how long you want to invest your money.

For any type of investment, there's always a risk return and trade-off. The higher the risk, the higher the return. The Money Market Fund is the least risky and lowest return among all types of mutual funds while the Equity Fund is considered the one with the highest risk but the highest return of investment too.

Let's have a look at the previous performance of the different types of mutual funds in the Philippines:



The longer you hold, the better the returns will be. If you notice, the 5-year returns for the Balanced Fund and Equity Fund was lower than that of the 3-year returns. It's actually because for the past 5 years, we experience the 2008 financial crisis which affected not just the Philippines but the entire world.

So are there any downside in investing in any of these mutual funds? The value of your money invested fluctuates depending on the performance of these debt instruments and the Philippine stock market so it is best to think long-term and give your money some time to grow. To maximize the earning potential of your money, it is highly recommended to stay invested for at least 5 years. 

Are there any fees that an investor should pay during the investment period? The answer is yes.

As mentioned earlier, the good thing about investing in mutual funds is that there will be a dedicated fund manager who will make sure you maximize your returns of investment. Therefore, there will be management fees applicable in any kind of mutual fund investment. 

The management fees of mutual funds vary between mutual fund companies. As you can see from the table above, the Equity Fund requires higher management fees than the Money Market Fund simply because the Equity Fund requires more monitoring than the Money Market Fund.

There are two ways that an investor can pay the management fees. The front-end load and the back-end load. Front-end load means the investor have to pay a certain percentage upon entering into the fund. The rate typically ranges from 0.5-2% of the total amount that you invest. But once you redeem or withdraw your investment, you won't have to pay for any fees thereafter.

Whereas the Back-end load is when an investor does not have to pay anything upfront but there will be fees applicable when you finally withdraw or redeem your total investment. 

Mutual fund gains are non-taxable also. The taxes are already incorporated in the fees and paid by the fund.


Happy Investing,

Tina @ InvestingOFW









5 comments:

  1. hi! im an ofw here in denmark. im 22 years old and wants to start investing in mutual fund but i dont know how to if i am still in abroad. i will highly appreciate if you could email me at jcbhe02@gmail.com

    regards and more power!

    ReplyDelete
    Replies
    1. Hi! Just sent an e-mail directly to your gmail account. Feel free to contact me should you have any further clarification. Thank you and Happy Investing!

      Delete
    2. However, I received an e-mail notification from Boxbe informing me that I am on your Boxbe Guest List. Let me know when you received it. Thanks.

      Delete
  2. HI im an ofw here in riyadh, saudi arabia. I am interested to invest in mutual fund. please let me know how to join. please email me at ryanclm@yahoo.com.

    Thanks.

    ReplyDelete
  3. good day im working here in qatar and i want to know how to invest in mutual fund..kindly send the info in my email noel082684@yahoo.com.thnx

    ReplyDelete