What is mutual funds?
A Mutual Fund is an investment company that pools the funds of many individual and institutional investors to form a massive asset base. The assets are then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments. People who buy shares of a mutual fund are its owners or shareholders. Their purchases provide the money for a mutual fund to buy securities such as stocks and bonds. A mutual can make money from its securities investments in two ways: a security can pay dividends and interest to the fund, or a security can rise in value. The fund passes any dividends, interest or profits on the sale of its portfolio securities, less fund expenses, to shareholders in the form of distributions.
Different Funds, Different Features
In the Philippines , there are currently four basic types of mutual funds---stock (also called equity), balanced, bond and money market funds. Bond funds invest primarily in bonds such as treasury notes issued by the Philippine government and commercial papers issued by reputable companies in the Philippines . Having a full basket of only fixed-income securities, bond funds provide capital preservation while maintaining a conservative stance in terms of asset allocation. Like bond funds, money market funds also have a conservative stance since they have a full basket of fixed income funds. The main difference lies in the term of investments of money market fund investments, which is one year or less. Equity funds invest primarily in shares of stock issued by Philippine corporations. The dominance of stock issues within the portfolio positions the fund to attain a more aggressive rate of growth. Balanced funds invest in both shares of stocks and bonds, thereby accessing the growth potential of stocks tempered with the presence of secure fixed-income instruments. Professional fund managers create value for shareholders by providing superior yields within controlled risk exposures. Certainly, expective in both security selection and asset allocation go a long way in ensuring better long-term rewards for mutual fund investors.
- Professional Management- There is a dedicated professional manager who provides investment expertise in researching, selecting, and monitoring the performance of the securities purchases.
- Diversification - When you diversify, you lower your risk because you do not put all your eggs in one basket. The money will be spread among different stocks, bonds, and other assets.
- Liquidity- You can get in or out quite easily. It means you can easily invest in mutual funds and you can easily withdraw your funds.
- Low investment minimums- The minimum required investment amount for some mutual funds could be as low P 5,000.
BOND FUND
A bond fund or debt fund is a fund that invests in bonds, or other debt securities. Bond funds can be contrasted with stock funds and money funds. Bond funds typically pay periodic dividends that include interest payments on the fund's underlying securities plus periodic realized capital appreciation.
STOCK/ EQUITY FUND
BALANCE FUND
A balanced fund is another option for intermediate-term investors. Balanced funds, which are often called hybrid funds, own both stocks and bonds. They earn the "balanced" moniker by keeping the balance between the two asset classes pretty steady, usually placing about 60% of their assets in stocks and 40% in bonds.
Mutual Fund (Investments) – FAQs
What are Mutual Funds?
To start with, there are what we call Mutual Fund Companies, some examples are the following:
1. Philam Asset Management, Inc. (PAMI)
2. Philequity Management, Inc. (PEMI)
3. First Metro Asset Management, Inc. (FAMI)
4. ATRAM (former ATR KimEng)
5. SOLDIVO FUNDS
6. Sun Life Asset Management Co. Inc.
…At marami pang iba.
Each of these companies offer/sell a range of their Mutual Fund investments to us... to you. If you buy now one or several of these, that's the time that you say something like: "May Mutual Funds ako!" or "Nag-invest ako sa Mutual Funds" …and so on.
Mutual Fund investments are actually "pooled funds". They are pooled or pinag sama-sama together para makabuo ng mas malaki or "strategic" na fund which is then further invested in different financial instruments or vehicles (such as stocks/equities, gov't bonds, commercial papers, fixed income, etc.).
Q: Sinong nagpu-pool at nag-i-invest nung pooled funds?
A: Eh di, yung Mutual Fund Company w/c you have chosen to get one or several products from... specifically, yung tinatawag nila na Fund Managers nila.
Q: Are they legit companies?
A: Mutual Funds are "legitimate financial institutions" and are "highly regulated" by the Securities & Exchange Commission (and indirectly by the PSE and BSP rin).
~Another way of saying that, Mutual Funds are [very] legal --- they are specially designed/composed for the "average investors".
*Note: Mutual Funds are Not "Fixed-Income/Rate" instruments (e.g. Savings Account, Time Deposit, Special Deposit), they are subject to the "volatilities" of the stock market. They offer potentially higher returns with relatively higher potential risks than fixed-income structures.
Q: How do we make use of them as "financial instruments"?
A: Dahil "pooled" nga, you can now have a chance to participate (or invest) in the stock market and other more sophisticated investments kahit maliit lang ang pera mo (usually, Entry Capital can be as low as P10k to even P5k lang---para ka lang bumili ng mumurahing celphone).
Owning or investing-in a Mutual Fund is recommended by experts in the following scenarios:
#1. Pag di ka naman well-versed sa stocks or equities and you do not have (yet) the proper "skills, attitude, & time" (tulad ng mga professional investors) or kung wala ka namang interes para mag-pakadalubhasa sa area na ito, but you really feel that you need to be part of (or "ride") higher-yielding investment vehicles so that you can out-pace inflation, as you move towards your life’s investment objectives (ang hirap kayang humabol pag naiwan ka na, diba?)
*Note: Of course, you should at least know the basics man lang, diba? Do your own research! Better yet, be part of group who has trained financial mentors.
BEGIN With The BASICS! Revisit the fundamentals of "Practical Money Management,"
#2. Pag maliit lang ang naka-allocate mong pera for "riskier" investments or di mo pa kaya "emotionally" maglagay ng malaki dahil "natatakot" kang malugi (at di mo pa na-re realize na sa "Opportunity to Earn" ka dapat naka-focus at hindi sa "potential losses").
#3. Pag "long-term" (5 years & up) ang Investment Objectives mo --- e.g. retirement/pension, health & medical needs**, college education ng mga anak (pamangkin, inaanak, etc.), pondo para sa pangarap mong luxury cruise, etc.
**You should also have a Long Term Care (LTC) investment na dapat ka-tandem ng Short-term Healthcare plan w/c is provided by your company (while you are employed lang, pano pag hindi na?).
#4. Pag bangko lang ang alam mong pag-lagyan ng pera mo --- congratulations... meron ka nang kulang-kulang 0.25% per Annum sa savings mo...practically "risk-free(?)" pa!! Habang kinakain ng 3-5% Inflation Rate and natutulog mong pera.
*Note: VERY DANGEROUS talaga pag hindi mo alam ang Rule-of-72!
Q: Pa'no ako kikita?
A: Through "Capital Gains" or pag nag-appreciate yung value ng shares mo.
Ex. Kung bumili ka ng 500 shares at P10/share last year (so, worth P5,000 yun)... tapos this year, naging P15/share na... may P7,500 ka na na pwedeng ibenta (or sell,redeem,cash-in... pere-pareho lang yan)… therefore, meron kang (dyarararann dyaraaan!) 50% gain equivalent to P 2,500. (Kaya ba ng banko mo yan, hmmm?!).
Example lang ‘to ha… pero this is very possible my friend.
Or... Thru "Accumulation of Shares" sa pamamagitan ng consistent buying of additional shares (think of it as para kang nag-huhulog lang sa bangko every month or quarter) --- this second approach is what experts call Money-Cost Averaging method.
Q: Para ba silang mga Insurance company (yung mutual fund companies)?
A: Insurance companies offer products (insurance products) that serve as "Protection" while Mutual Fund companies offer pooled funds (mutual funds) that serve as "Investment."
At any rate, both Protection and Investments are critical building-blocks in establishing a Solid Financial Foundation---parang Offense & Defense, Left & Right, Day & Night lang yan... mag-kaiba pero parehong mahalaga! Delikado pag wala ang isa sa kanila.
Q: May mga pag-pipilian pa ba (choices)?
A: Sa Mutual Funds, you have the power to choose from amongst the products that they offer. Generally, 3 main types lang yan... iba't-iba lang tawag nila~
(1) Equity/Stock Fund,
(2) Fixed-Income/Bond Fund, and
(3) Balanced Fund (a blend of Equity & Bond funds)
Q: Kelangan ko bang bantayan lagi ang investment ko? (baka mapuyat ako!)
A: The fund manager (and a team of qualified professionals) will generally do that for you--yaan mong sila ang mapuyat, trabaho nila yun. Monitor mo lang din syempre ang pondo mo (pera mo yun e, kelangan subaybayan mo diba), Make it Grow! (by accumulating more shares on a regular basis), and Stick to your Investment Plans & Goals (or the reason/s why you did invest in the first place)... The rest is Victory!
So, yan... I hope nakatulong kahit pa'no ang explanation na ito. Again, please do your own research also.
As a closing, the most fundamental step is... to Make your Decision... Today! (tomorrow brings you closer to being "too late").