Pinoy Fund Runners

You already heard a lot of people investing on condominiums, stocks, government bonds, businesses, loans and time deposits. Let me share to you, my personal favorite investment instrument: Mutual Funds.

I could not describe better than what is place on Wikipedia: http://en.wikipedia.org/wiki/Mutual_fund

So instead, I would convince you on why Mutual Fund is considered a sound investment.


See Figure below:

YOU as an investor trust you hard earned money in the bank. In return, the bank gives you a small percentage growth on your savings ranging from 0.5% to 2.75% p.a., guaranteed. This is one way for the bank to attract more investors. Sounds generous? Wait until you look at the 2nd figure.




The money that you deposited in the bank is used by the bank institution to invest on a higher earning investment instrument. i.e. Bonds, Loans, Stocks etc. This investment instruments gives an average interest yield ranging from 6% to 17% p.a., potentially even higher. If you ever wonder why the banks are confident to give you interest yield on your savings deposit of 0.5% to 2.75%, it is because the banks are confident they will be able to get higher interest yield out from stocks, loans, bonds, etc.

The purpose of Mutual Funds is that it gives investors an opportunity to have direct access on these investment instruments that gives an investment growth higher that what is returned by the bank.








So how does it work? It is best explained with this picture:



You buy Mutual fund units called NAVPS (Net Asset Value Per Share). The unit prices changes every business day, which depends highly on the market or economy. You earn on mutual funds by using the same principle as Buy & Sell, "Buy Low, Sell High".

• Managed by a full-time professional fund manager whose main objective is to analyze investment products available in the market and select those who yield best.
• Requires low capital to start your investment. Usually, it requires only Php 5,000 for your initial investment and Php 1,000 for you subsequent investment.
• You have multiple funds to choose from depending on your risk appetite or financial objectives.
• Fund managers ensure that the money you invested is diversified to mitigate the risk of losing all of your investments. Remember the saying "Do not put all your eggs in one basket". For equity Mutual Funds, investment is diversified not just on different companies, but different industries as well. This reduces the risk of losing all your investment to a mere NULL.
• Liquid Investment. You could pull out your investment or sell your MF units, ANYTIME, either partial or full.
• Highly regulated by the Securities and Exchange Commission
• Potentially higher returns
• You could easily purchase Mutual Funds directly through SEC-Licensed Certified Investment Solicitors.
• Transparent. Your updated on your investment regularly either through mail or online
• Flexible. You may switch you funds anytime and you are not obliged to invest regularly.
  

Risks of Mutual funds:
Before I enumerate the risks, let me emphasize that NO investment bears NO risk. But even though there are risks on investing on Mutual Funds, these are properly mitigated by the advantages stated above. You have several funds to choose from, depending on your risk appetite. Remember that he higher the risk, the higher the potential return.

• Returns are not guaranteed. Fund value depends on the current unit prices of the fund you chose.
  • This is true; however, history shows that Mutual Funds, on a 5-year average, performed higher than time deposit, even higher than inflation rate.
    
• Fluctuates with market or economy.
  • Especially if you chose equity fund.
  • However, on a 10-year average, equity fund shows that its investment return is superior to any other fund.
    

Summary:The objective of mutual funds is not to replace your savings in the bank. Your bank should only serve as an emergency fund and other short term financial expenses such as food or clothes. But for your long term investment, I really recommend go for Mutual Funds due to it’s higher potential return. It’s liquid, flexible, managed by professional fund manager, and most of all, it is diversified. Because of it’s advantages, it is considered as safe and secure investment.