Frequently Asked Questions
Can I lose money in Mutual funds?
Yes, depending on market conditions. The fund manager’s job is ultimately to minimize risks and losses for the shareholder.
How much interest do I get as an investor?
Mutual funds do not give fixed returns. Returns are based on the difference between your buying price and the current NAVPS. Market conditions play a major role in determining the annual returns of mutual funds.
What if the fund manager performs poorly or goes bankrupt?
The shareholders simply need to appoint a new fund manager.
What prevents the fund manager from running away with my money?
Mutual funds are structured in a manner that protect the interest of its shareholders. The fund manager does not have any control over the physical assets of a mutual fund except to make buying and selling decisions. The assets are held by a custodian bank, appointed by the shareholders, who in turn can not transact for these assets.
What happens to my investment if I die?
Your shares in the mutual fund will form part of your estate and will be distributed to your heirs (usually surviving spouse and children) accordingly. There are tax issues involved in this regard.
Can I tell the fund manager what to buy or sell?
No. The fund managers will follow the investment parameters indicated in the fund’s prospectus.
What’s in it for the fund manager?
Management Fees. The amount will vary (normally ranging from 1.50% to 3.00% of the total assets per year). Note that the NAVPS that are published are already net of the management fee that is amortized daily.
Are mutual fund gains taxable?
No. Mutual fund gains are exempted from taxes based on the Comprehensive Tax Reform Program (CTRP). This was done to promote long-term savings in the country.
Where will you invest my money?
Your money will be invested in the shares of the mutual fund of your choice. Mutual funds, on the other hand, are invested in baskets of securities that vary depending on the type of fund. Hence, if you choose an equity fund, then you buy shares that invests mainly in listed stocks (90% maximum). A bond fund or fixed-income fund, in contrast, invests exclusively on interest bearing instruments. A mutual fund’s investment universe, including restrictions and risks, can be found in the fund’s prospectus.
How long is the maturity period?
Mutual funds do not have maturity periods which means that the shareholders can actually sell their shares in any banking day. Furthermore, mutual funds are required by law to buy back the shares from the shareholders and to release the proceeds of any sale within seven banking days. Most mutual funds however, charge exit fees for short-term investors and this may vary from fund-to-fund. In FAMI’s case, the exit fee is 1% for the investments of less than 6 months. The exit fee is waived after the sixth month.