In my previous blog “Growing Your Money in just 3 Simple Ways for Beginners”, I have recommended investing in Mutual Funds to good people who are starting to grow their money for their brighter future. I mentioned that I'll be talking more about Mutual Funds in my succeeding blog.
As promised, I’d like to share with you today more about Mutual funds in simplified form.
WHAT IS MUTUAL FUND?
“It is like rice. It is a staple” - Bo Sanchez
“It is a pooled fund collected from several investors for the purpose of investing in securities.” –INVESTOPEDIA
“It is a collection of funds from many investors which is managed by a professional fund manager to gain income for the investors.” – isavenvestify
BENEFITS OF MUTUAL FUNDS
- Managed by professionals
As a starting investor, you need someone to manage your investment.
Like in starting a business, you need an expert to guide you in growing and managing your business to minimize the risk and maximize your income.
These professional managers will closely monitor the market to let your money grow no matter how small your fund is.
- Convenient
Because they are managed by professionals, mutual funds are easy to invest in. You don’t need to do the monitoring of the market and looking into every detail of your investment.
- It is already diversified
Mutual Fund has a default setting which I personally call the “diversification app”. The fund manager will instantly invest the collected fund in a wide range of securities.
This will balance the risk of loss because if one of the securities goes down, the others might be performing well.
The Fund manager puts the eggs in different baskets to minimize the risk of losing all the eggs when crisis strikes.
- Beats inflation
Putting your money in Mutual funds provides you the chance to beat the inflation rate comparing it with just putting your money in your bank’s saving account.
- Allows anybody to start small and can consistently add small
As an ordinary employee with a not so extra-ordinary salary, investing in mutual funds is affordable.
You can start with a minimum amount of 5000 Pesos and can consistently add a minimum amount of 1000 Pesos anytime.
- Safe
Mutual Fund is a legitimate investment instrument. It is highly regulated by the Securities and Exchange Commission (SEC).
The funds are only invested into particular investment products and are prohibited to engage in certain transactions that may jeopardize the investors.
Mutual fund managers are like bus drivers. Remember that each public utility bus has a certain route. Each mutual fund also has particular securities to be invested in.
Buses are prohibited to takes routes which are not included in their transport or franchise permits and so do mutual funds. The fund manager can not just invest the pooled funds in any securities that are not in the list.
- Liquid
Your Mutual Fund investment can be redeemed anytime. However, you just need to take note of the fees that may apply if you redeem your fund earlier than the minimum holding period.
DRAWBACKS OF MUTUAL FUNDS
- You don’t have control over your fund
Because you are not the one managing your fund, you don’t have control over it. The only control you have is when to add funds or when to redeem your funds.
Imagine yourself riding on a bus. Because you are not the one driving the bus, you have no control which route the bus driver will take. The only thing you can do as a passenger is to wait for the designated stations to get on and off the bus.
Unlike if you are directly investing in the stock market, you have total control of your fund. It’s like driving your own car. You can take any route you wish to take.
- Returns are not guaranteed
Mutual funds are affected by market conditions. There are times that the market is at loss. Thus returns in mutual funds are not guaranteed.
However, there are strategies that you can do as an investor to minimize the loss and maximize your returns. This can be done through long term investing and the cost averaging.
FOUR TYPES OF MUTUAL FUNDS
- Money market funds
These funds have the lowest returns and with lowest risk also.
These funds are invested in short-term government securities including time deposits and special savings accounts.
This is recommended for short-term investing which is ideally, less than 1 year.
This is recommended for conservative investors.
- Bond funds or fixed income funds
These funds are invested in low risk assets such as government securities and corporate bonds that generate consistent returns
This is recommended for short to medium term investments which is ideally, 1 to 3 years.
This is for moderately conservative investors
- Balanced fund
These funds have balanced mixture of safety, income and capital appreciation
This is recommended for long term investment which is ideally, more than 3 years
These funds are invested in fixed income securities and in the stock market
This is for moderately aggressive investors
- Equity funds
These funds have higher returns but the risks are greater, too.
This is recommended for long-term investment which is ideally, more than 5 years.
These funds are invested in the stock market
This is for aggressive investors.
MUTUAL FUND PROVIDERS IN THE PHILIPPINES
Below are the list of mutual fund providers listed in the COL Fund Source of COL Financial Philippines
You may approach any of these providers to start your first mutual fund investment.
MUTUAL FUND SUPERMARKET
As a COL Financial Philippines’ client, I have experienced buying my mutual funds though the COL Fund Source which is the first “Mutual Fund Supermarket” in the Philippines.
Benefits of buying mutual funds through COL
- Easy and Convenient
Investing in mutual funds through COL Financial eliminates the troubles of going to the different mutual fund providers to invest.
This makes funding and monitoring your investment very convenient with just few clicks of mouse.
- No front and end fees
Front and end fees are the charge deducted from your fund from your initial fund and from the sales when you redeem your fund.
When you invest in mutual funds through COL, the front and end fees are waived.
Bonus: Advise from my mentor for 2016
Because of the market’s volatility at this time, my mentor advised me to invest in mutual funds.
My interpretation:
In this volatile market, the professional managers have more professional knowledge where to invest my fund.
They closely monitor the market and has a better understanding of what’s going on.
P.S. 1: To know more about stock market and mutual fund investing and receive professional advice on how to manage your investment, join the Truly Rich Club by clicking here.
P.S. 2: To learn how to start a stock market investment, fill in the subscription form to receive my free e-book "How Did I Enter Into the Philippine Stock Market-My Step-by-step Guide"
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