Most people think they need a lot of money to start investing. Nowadays, for as low as Php 5000, you can start on your investing journey with mutual funds.

In today’s post we will share everything you need to know about investing in mutual funds for beginners. Let’s begin.

 

What is a Mutual Fund

 

A mutual fund is a pool of money professionally managed and invested in specific types of securities.

Investing in mutual funds allows you to entrust your money to a Fund Manager who will do the trading decisions on your behalf.

This investment vehicle presents a ton of advantages for beginners and busy investors. Not only are you not required with a large sum of money to invest, mutual funds are also suitable for those who don’t have the time and capacity to manage their own investments.

Mutual Funds are typically long term investment vehicles that can be used by individuals as a tool for achieving their financial goals such as:

Funding for education;
Funding for retirement;
Lifestyle Planning;
Estate Planning

Institutional investors can also take advantage of mutual funds for attaining objectives like:

Asset liability matching;
Funding for Retirement
Lifestyle Planning;
Diversification of existing investment portfolio

 

How Mutual Funds work

 

This diagram shows a simple explanation on how investing in mutual funds work:

mutual-funds-beginners

To put briefly, 

Investors with similar objectives and risk profiles invest in a mutual fund.

All investments from said investors will be pooled together by the mutual fund company.

The Fund Manager will do the asset allocation and management of the fund including buying and selling of stocks, bonds and other securities, on behalf of all the investors. 

Finally, the Fund Manager will look at the current assets, determine the value and divide its numbers to the total number of outstanding shares. The risks, gains and losses the fund will accumulate will be distributed proportionally to all of the investors. 

How Do You Make Money in a Mutual Fund?

 

Mutual Funds don’t give fixed returns of investment. Your returns will be based on the Net Asset Value Per Share (NAVPS) on the day you redeemed your investment. 

Here’s an example:

Mr. Diaz invested Php 100,000 in First Metro Save and Learn Equity Fund. The NAVPS of the fund was Php 2.0424 on January 22, 2010 for a total of 48, 139 shares.

Mr. Diaz redeemed his 48,139 shares on January 22, 2018 and the NAVPS on that date is Php 6.2197. The total return of his investment is now Php 299,410.

Types of Mutual Funds in the Philippines

 

There are a number of mutual funds available based on composition (where it invests), investment horizon, fund objective and risk meter.

There are five primary types of mutual funds:

  1. Money Market Fund – This fund invests purely in short-term market and debt instruments with one year or less maturity period. 
  2. Bond Fund – This fund invests in long-term debt instruments of governments or corporations.
  3. Balanced Fund – This fund invests in a combination of shares of stocks and debt instruments.
  4. Stock/Equity Fund – This fund invests primarily in shares of stocks.
  5. Index Fund – This fund invests in a passively-managed portfolio that tracks and/or mirrors a particular market.

 

Advantages of Mutual Funds

 

Professional Management

The money accumulated in a mutual fund is managed by professionals who decide on behalf of the shareholders on investment strategy. These professionals are called Fund Managers who choose investments that best match the fund’s objectives. 

The Fund Managers’ investment decisions are based on extensive knowledge and research of market conditions and the financial performance of individual companies and specific securities. 

Now, you can take advantage of the expertise of fund managers as they work to maximize the growth of the fund. 

Diversification

When you invest in a mutual fund, you are typically investing in a variety of stocks and securities that best suit your risk-appetite and life goals. Having a diversified portfolio helps reduce risk by offsetting losses from safe securities with gains in others.

Mutual Funds provide an economical way for average investors to obtain the same kind of professional money management and diversification of investments that is available to large institutions and wealthy investors. 

Liquidity

Liquidity is the ability to readily convert investments into cash. Mutual Funds are considered very liquid investments. You can withdraw your invested money at any point with only minimal fees should you redeem before the holding period. 

Safety

Mutual Funds are highly regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act and its implementing rules and guidelines.

Daily Pricing

Mutual Funds must calculate the price of their shares every business day. The price you pay is the NAVPS or Net Asset Value per Share, a figure that changes every day. It represents the market value of the investment assets the mutual fund company owns.

Voting Rights

Mutual Fund shareholders are considered part owners of funds and are therefore entitled to vote during the funds’ Annual Shareholders Meeting (ASM).

Potential Higher Returns

Because a mutual fund is managed as simple as a single portfolio, it is able to take advantage of certain economies of scale. For instance, with its millions or billions under management, it can negotiate for lower stock brokerage fees or command higher interest rates on fixed-income investments.

Tax Free 

All earnings of the fund are not taxed pursuant to the regulations set forth by Republic Act 8424.

 

How To Open a Mutual Fund Account with First Metro Asset

If you think mutual funds are for you, here’s how you can start investing in them:

1. Find out which mutual fund you want to invest in. Read this guide to know how. 

2. Read your chosen fund’s prospectus.

3. Completely fill out the Account Opening Form (AOF).

    • For Individual/Joint/In-Trust For/For Account Of
    • For Institution/Corporation

Note: For Joint Accounts, every investor/applicant must accomplish a copy of the Customer Data Sheet.

4. Attach a photocopy of the following documents:

    • For Individual, one (1) valid photo-bearing government ID. Check here for the List of Valid IDs.
    • For Joint Account, one (1) valid photo-bearing government ID for each individual/applicant.
    • For In-Trust For (ITF) accounts (below 18 years old), one(1) valid ID or the child’s birth certificate.
    • For Institutions/Corporation
    • Secretary’s Certificate/Board Resolution authorizing investment with FAMI and its mutual funds;

Secretary’s Certificate/Board Resolution on the authorized signatories;

Customer Data Sheet (CDS) of each authorized signatory;

One (1) valid ID of each authorized signatory;

SEC Certificate of Registration

Articles of Incorporation and By-Laws (Corporation Sole for Religious Institutions);

Latest Audited Financial Statement;

Latest General Information Sheet (Cooperative Annual Performance Report or CAPR for Cooperatives)

5. Submit all originally signed documents to any of the following channels:

    • First Metro Asset Head Office
    • Any First Metro Asset Investors Center
    • Any Metrobank Branch – you may download the forms and submit to any Metrobank branch, they will be the ones to forward to us the documents. Just use the pouch code 90020.
    • Note: Your FAMI Account Number will be sent via SMS within one banking day after the receipt of complete documentary requirements.

 

Subscribe

* indicates required




First Metro Asset Management Inc. will use the information you provide on this form to be in touch with you. Kindly tick the box if you agree in receiving email messages from us.


You can unsubscribe at any time by clicking the link in the footer of our emails. For information about our privacy policy, please visit the link at the bottom of this webpage.

We use Mailchimp as our marketing platform. By clicking below to subscribe, you acknowledge that your information will be transferred to Mailchimp for processing. Learn more about Mailchimp’s privacy practices here.


Related posts