Investing 101: Mutual Funds

Rampver Financials

Many years ago, Filipinos were just investing in time deposit accounts. It gives reasonable return back then. So saving is very encouraging because your money will grow without risk.

But today, savings account will only give you an interest of about 1%. Of course, it will be taxed, that gives you a lesser return.

Investing in this kind of vehicle is more risky than investing in a much more volatile ones. Thus, we are here to introduce you to a more exciting way of reaching your financial goals.

Mutual funds

By definition, it is a pooled fund of investors managed by professionals to make it grow over time. It is traded in different paper assets like equities or stock market, bonds and money market.

These fund managers are professionals. Analyzing the market on what to buy, when to sell based on facts and current events. They even do some projections based on future projects, earnings, government and political policies. Then some technical analysis based on charts, indicators, price movements and trade volume.

Believe me, it’s a lot of numbers. I’m doing all the research and computations as an independent stock market investor. It’s very fulfilling on my part because I love what I’m doing. But, it’s very tiring too, given that there’s a lot of companies out there and the market is really vast. Now, I have a team to support my decisions on allocating my funds for a better result.

What I actually want to say is that, if you want to invest and you’re just intimidated by these factors, there is a way for you to earn and be profitable if you invest in mutual funds.

Stick to your core gift. Do what you do best but don’t neglect your responsibility to take care of your family’s financial future.

Let me give you some ideas on how mutual fund works, how you can earn from it, how safe it is and how much would it cost to open an account.

Opening an account

To open an account you need at least 5,000 php. You can already buy shares with this amount. Succeeding amount of investment could be as low as 1,000 php.

Is it too much? I bet it’s just a few movie tickets, a few meals or a weekend drinking session. So there’s no reason why you should procrastinate. A few sacrifice today would really go a long way for your future.


Talking about safety, mutual funds are highly diversified from different sectors of the market. That means, if one sector goes down, the other sector may go up or would recover more quickly from a crisis.

Philequity Sample Portfolio.PNG

Also, it is diversified in other markets like bonds and money market. Certain percentage is also retained as cash for liquidity and hedging the fund.

Asset allocation is also one form of diversification. That means fund allocation in a certain investment will not be more than 10% of the company’s total asset. That is how they manage risks.

Liquidity is also one of the advantages of investing in mutual funds. You can withdraw anytime you want. Redemption of shares are usually settled from transaction date plus 5 working days. Mutual funds are considered a near cash asset.

It will have a corresponding exit fees depending on what type of fund you have and how long you put your money in the fund. But the usual is 2% if redeemed in a year and 1.5% if within 2 years. Beyond that, there will be no exit fees.

Yes, there are fees to consider. That is normal in every investment you take. So make sure before you redeem your shares, it is profitable enough to cover the expenses. The good thing here is, it is not taxable, you will get the value of your shares net of tax (under the National Internal Revenue Code of 1997).

Third party auditor

Mutual fund companies are regulated by the Securities and Exchange commission. Thus making it a legitimate business registered in the Philippines.

Aside from that, they are required to be audited by third party to ensure it is aligned with its purpose.

How will you earn in mutual funds?

You will earn via capital gains. Meaning if you buy shares at 1 php and redeem it at 2 php, that is a whooping 100% gain. Too fast?

Here’s an example:

You have 100 php, you bought shares at 1 php per share. So that’s 100 shares, right?

Then the market goes up, trading performance beats estimates, the company is profiting with dividends given by companies they bought in the stock market and all other stuff.

Now, the Net Asset Value per Share goes up at 2 php.

100 shares x 2 = 200

From 100 php originally invested goes to 200 php. A 100% profit.

Imagine if you do it consistently and we are talking about 100,000 going to 200,000 because of that gain. This is passive, you don’t have to be a genius to do this. All you have to do is to be disciplined enough to do it consistently.

There you have it, a simple and concise explanation on how mutual fund works and how you could reach your financial goals through that investment. Feel free to leave a comment below or email me if you have queries and suggestions.

PS. We are advocating Financial Literacy, teaching people around the world how to achieve their financial goals. Our goal is to help 1 million families to be financially educated by year 2020. Attend our FREE Personal Finance Seminar to learn and be part of that advocacy. Register here.

PS2. Do you want to gain Financial Wealth and Spiritual Abundance at the same time? Join the Truly Rich Club.




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