Beginner’s Guide to Invest in Mutual Funds in the Philippines
Are you planning to invest your money in something? Before you do that, you need to learn more about investing. Being part of your financial planning, learning will help you understand how your money grows over time. Growing money through investing might take time, but in the end, you’ll reap your gain. If you’re now looking for an avenue to invest, consider investing in Mutual Funds. To learn more, this article will discuss everything you should know about mutual funds.
Mutual Funds Table of Contents
Types of Mutual Funds in the Philippines
How to Earn from Investing in Mutual Funds
Advantages of Investing in Mutual Funds
- Start with Small Capital
- Earning a Passive Income
- Gaining Trust Fund for Kids
- Money Market Funds
- Tax-free
- Liquidity in Investment
- Expert Fund Managers
- Flexibility of Mutual Funds
- Promising Diversification
- Our Developing Economy
- Safe Way to Invest
- Possible Higher Returns
- Convenient Investments
Disadvantages of Investing in a Mutual Funds in the Philippines
- Location
- Fees and Charges
- Lack of Control
- Turnaround Time
- Unmet Expectations
- Capital Depreciation
- Ownership
Top 10 Best Mutual Funds Company in the Philippines
Things to Take Note When Starting Mutual Funds
How to Open a Mutual Fund Account
Credit: https://www.bondora.com/blog/7-signs-you-are-bad-at-saving-money/
What is a Mutual Fund?
Mutual Fund is the combined money from the public that is invested in exchange for a profit. The money that is collected is used to buy and sell securities.
Securities are stocks or bonds that have the potential to multiply. Companies such as PLDT, Jollibee, Ayala, SM, and more offer stocks that can further be bought or sold on the Philippine Stock Exchange.
You can have a share of earnings from the Philippines’ biggest companies. The Securities and Exchange Commission is the one that regulates the mutual fund of companies in the Philippines.
Types of Mutual Funds in the Philippines
There are four types of mutual funds Philippines. Beginners or investors can choose among the four. First, you need to learn about them to aid you in choosing the type of mutual fund that would best suit your preference.
Stock Funds
These are about stocks. This kind of fund is for aggressive investors because the prices of the stocks could go up and down. There is a risk for loss of capital, but the potential gain is also high.
- Index Funds: The stocks purchased are from the top thirty companies that comprise the stock index. Also, it is known as the blue-chip stocks.
- Equities Funds: This fund is ideal for investors with experience with the stock market. They share stock with companies listed on the Philippines Stock Exchange. The investment could last five years or longer.
Bond Funds
These stocks are in bonds. Bonds are loans to entities with a promise of interest payments and the return of your capital. So once you purchase a bond, you become a lender.
Just like in the case of stocks, if you purchase a stock, you become a shareholder or part owner of the company.
This is for investors who want to preserve their capital. The funds invested are in government bonds and corporate bonds.
The investment could last from one to three years.
Balanced Funds
This kind of fund is invested in a mix of bonds and stocks. These are for investors who want to earn higher profits but consider the safety of their bonds. The funds invested are in stocks and bonds, with a percentage of 60% stocks and 40% bonds.
These mutual funds investment Philippines could last from three to five years.
Money Market Funds
The funds invested are in treasury bonds and bank deposits.
Treasury bills or T-Bills are short-term investments (usually less than a year) priced at a discount.
On the other hand, bank deposits like a Time Deposit Account are another short-term investment where your money is locked-in for some time and earns interest.
There are different types of bank deposits such as savings accounts, checking, time deposit accounts, money market accounts and certificates of deposit (CDs).
Both consider safe securities because they have a significantly low risk. Also, it has a low potential for returns.
The funds are invested in short-term securities like time deposits, government treasury bills, and corporate bonds. The investment could last a year or less.
How to Earn from Investing in Mutual Funds
There are three ways for investors to earn and here are the three of them:
Earn through Asset Appreciation
When the fund you are investing in sells securities has a capital gain, it is divided among the fund’s investors. You can earn a return by selling your shares.
Earn through Interest
With interest, the money you will earn depends on the interest rate and time. You will earn from the annual interest payment in bonds with mutual funds.
Earn through Dividends
Dividends are your earnings from stocks. The dividend distribution is usually done quarterly, semi-annually, or annually.
For payment, you can receive it through a check. Or, you reinvest your profit to buy more shares.
Advantages of Investing in Mutual Funds
There are lots of advantages when you invest in mutual funds. It is ideal for young investors or first-timers.
Start with Small Capital
You can start investing at a low price. For example, you can open an account from as low as PHP 1,000 to PHP 5,000. Also, you will be required to buy a minimum number of shares.
If you buy bonds, you will be required to put up at least PHP 50,000. And if you buy stocks, you would be asked to buy them from the board lot.
Earning a Passive Income
You can earn a passive income higher than a savings account or time deposits. You don’t have to be involved in the fund’s operation, but you can still enjoy earning an increase in the value of your investments. This is ideal for you if you aim for a long-term goal.
Gaining Trust Fund for Kids
This could be ideal for you if you are saving for your kids. You can request your account to be under “in trust for.” This will transfer the ownership of investments from you to your kids when they reach legal age.
Tax-free
According to the Republic Act of 8424 regulations, investing in mutual funds is not taxed.
Liquidity in Investment
Mutual funds have high liquidity in investment. If you need to withdraw because of an emergency, you can do that according to the terms you have applied for. The law requires companies to allow the redemption of shares within seven days.
Expert Fund Managers
The fund managers work to maximize the growth of your fund. You don’t have to understand or study the gist of stock exchanges. Also, you don’t have to analyze company financial reports or know the value of bonds. But you can take advantage of the fund managers. They are the ones who will do all of these for you.
Flexibility of Mutual Funds
Mutual funds are flexible because investment companies operate multiple funds. It is easy to transfer from one account to another. This is ideal if you want to switch strategies or get a different objective.
Promising Diversification
Your money is invested in their portfolio of assets from a variety of industries. By diversifying, you can reduce the risk of having a low return in case an individual company or an industry experiences a slowdown.
Our Developing Economy
As our economy grows, it is the best time to invest in mutual funds. When you buy shares from the biggest companies in the Philippines, you can also have part of their earnings. If the economy is booming, you can also gain a high net worth.
Safe Way to Invest
Mutual funds companies in the Philippines are under the Securities and Exchange Commission. They are required to comply with the regulations set in the Investment Company Act or the Republic Act of 2629. This means that investment companies can only operate once the SEC gives them a license.
Possible Higher Returns
Mutual funds companies could be managing a huge amount of assets. They can negotiate for a lower fee from brokers and higher interests.
Convenient Investments
You can manage your investments conveniently as there are experts to do it for you. You can easily get in touch with brokers, agents, and representatives. Also, they offer financial seminars to enhance your financial literacy.
Disadvantages of Investing in Mutual Funds in the Philippines
Despite the numerous perks that come along with mutual funds Philippines, Filipinos still face some drawbacks.
Location
Some companies might not have a branch near your place. It can be a hassle if you want to talk to a representative in person. However, you can deal with the companies online.
Fees and Charges
Aside from front-end fees and annual charges, there are other fees you could be paying.
Lack of Control
You can take advantage of the expertise of fund managers, but you are not in control of your securities.
Turnaround Time
The redemption of shares and releasing of money could take time. It could be between one to three days.
Unmet Expectations
There is no assurance of the return on investment. This will solely depend on the performance of the fund.
Capital Depreciation
There is a risk of capital loss because the market might slow down. But this risk can be managed by long-term investment.
Ownership
Once you invest, you are considered a stockholder of the mutual fund and not the individual companies.
Top 10 Best Mutual Funds Company in the Philippines
Many Filipinos are hesitant to invest in mutual funds due to the fear of being scammed. But in order to find a reliable company, you search from the lists of companies on the SEC website.
Here are the top 10 lists of companies based on the Net Asset Value Per Share:
- Philam (Philam Bond Fund, Inc) has a return on investment of 11.54%.
- Sun Life (Sun Life of Canada Prosperity Bond Fund, Inc) has a return on investment of 11.20%
- Sun Life (Sun Life Prosperity GS Fund, Inc) has a return on investment of 10.47%
- Soldivo (Soldivo Bond Fund, Inc) has a return on investment of 8.03%
- Philequity (Philequity Peso Bond Fund, Inc) has an ROI of 7.71%
- Philam (PAMI Horizon Fund, Inc) has an ROI of 7.21%
- FAMI (First Metro Save and Learn Fixed Income Fund, Inc) has an ROI of 6.79%
- Philam (Philam Fund Inc) has an ROI of 6.61%
- Philam (Philam Managed Income Fund, Inc) has an ROI of 6.35%
- Sun Life (Sun Life of Canada Prosperity Balanced Fund, Inc) has an ROI of 5.81%
Also, you can get updated information from the NAVPS performance data on the website of the Philippine Investment Fund Association (PIFA).
Now, you know the best company to invest in mutual funds Philippines.
Things to Take Note When Starting Mutual Funds
- Initial Investment: This is the smallest amount of money for you to open an account.
- Additional Investment: This is the lowest amount of money you can add to your investments.
- Front-end Fee: The percentage of your investment goes to the company as your fee.
- Management Fee: It is the annual payment charged to you for the operation of a fund.
- Exit Fee: When you withdraw within the first few months, you will be charged the exit fee.
- Investment Value: It is the worth of each share of the fund that is issued to investors. It is the sum of all of the funds minus debts. The result is then divided by the number of shares.
- Proof of Ownership: These are the shares issued to you. The number of shares depends on your investment and the NAVPS.
- Securities: These are the assets of the funds like stocks, bonds, or money markets.
- Earnings: These are non-taxable amounts of money.
How to Open a Mutual Funds Account
Step 1. Visit the Website for Mutual Funds
Go to the website of your chosen Mutual Funds Company.
Here are some links to the licensed Mutual Funds companies in the Philippines:
- ALFM Mutual Funds
- ATR Asset Management (ATRAM MF)
- Cocolife Asset Management Co. Inc.
- First Metro Asset Management Inc. (FAMI)
- Grepalife Asset Management Corporation (GAMC)
- MBG Equity Investment Fund, Inc.
- Philam Asset Management Inc. (PAMI)
- Philequity Management, Inc (PEMI)
- Sun Life Financial Philippines
Step 2. Registration
After visiting the website of your chosen company, you will be asked to fill out a questionnaire to determine your risk profile. You will also be asked to choose the type of mutual fund that suits your risk profile and investment goals.
Step 3. Documents and Forms
Download the required documents and forms from their website. The documents included are the application form, investor profile assessment, and prospectus. The prospectus is a document that is required by the SEC. It shows investment offerings.
Step 4. Submit Requirements
Make sure to fill out all the required documents. Go to the nearest branch of your chosen company. Bring photocopies and original copies of your valid IDs. If visiting the location of the branch is a hassle for you, you can send your documents via mail.
Step 5. Funding your Mutual Funds
Upon receiving the confirmation of your account, you can start funding it. The required initial amount of your mutual fund deposit ranges from PHP 5,000 to PHP 10,000.
Once you open a Mutual Fund account, you can now start buying or selling. You can now monitor your mutual fund’s performance regularly – it could be either every six months or annually. Also, it will give you updates on the current investment strategies.
Final Words
Mutual Funds are a stepping stone to investing in stocks. It’s affordable and the best investment for beginners Philippines. It is both convenient and well-regulated.
Additionally, investing in mutual funds is the best startup to begin with your retirement fund. So, if you’re considering investing, you’d better do it as early as tomorrow or today!
Investment always contains risk. The important thing is you know and understands how it works. By learning, you will grow!
If you want to invest but don’t have enough money to do it, you can begin with borrowing.
Yes, you read it right!
You can use loans for your investments. If you have regular earnings – salary or profits (business) – enough to pay up your loans on time, why not?
Just make sure to get a loan from a licensed moneylender that doesn’t require collateral.
You can make a better life by investing!
