Due to popular demand, here it is – a posting dedicated to mutual fund investing for dummies. Thanks to Alfa and Hachiko for this idea. We will definitely wait for the glorious, painful detail of your mutual fund experience! 
There are a lot of definitions of mutual funds out there, but I am most fond of using the analogy of a car pool. Car pools help you get to your destination without having to worry about taking the best route – you let someone you trust take the wheel so you can focus on other things like..uhh..fighting stress!
Mutual funds can help you reach your financial goals without having to worry about the everyday ups and downs of the stock or bond markets. It is also a way of giving newbie investors a taste of what it is like to own stocks and bonds – at a much lower entry level. Imagine, for a P5,000 investment for example, you instantly have a diversified portfolio!
Compared with the mutual fund industry in other markets, though, ours is still very young and certainly a lot of things still need to happen for it to grow.
I began writing about mutual funds when, under the direction of my then-editor Sheila Samonte-Pesayco, our team published the country’s first section in a national newspaper dedicated solely to Personal Finance. That was around 1998 or 1999. A lot has changed since then, and certainly mutual funds are more popular now. In fact, judging from the discussions in this blog, it is fast becoming a hot investment instrument that offers superior earnings compared with the more traditional time deposits.
However, the industry still has a long way to go. Definitely, it is still light years away from successfully drawing the more than P1-trillion deposits of Filipinos languishing away in banks’ time deposits.
Here are some useful links that I’ve collected through the years:
The website of the Investment Company Association of the Philippines has a “Mutual Funds 101” website that you should check out.
How to choose a mutual fund
Discover mutual funds as savings tool
Investing your hard-earned money (Look beyond regular savings accounts)
Retirement plans vs mutual funds
Can I lose everything I’ve invested in mutual funds?
Useful tips:
- Every human being learns how to chew with small bites. In investing, start with the simplest concepts: read the fine print.
- Don’t depend on the agent to explain everything. Ask for the prospectus and take out a magnifying glass if you need to.
- Things to watch out for are sales loads, management fees and charges. These can have different forms and can attack a fund from many angles.
- Fees and charges depress your returns. While your mutual fund investment is not taxed as opposed to the 20 percent withholding tax on time deposits, you pay commission or sales loads sometimes in the form of entry and exit fees anywhere from 0.25 percent to three percent.
- The trick is to spot the high commissions and sales loads on those prospectuses and scrap these funds from your list. Stick with funds that offer the lowest operating expenses and commissions.
Happy investing, everyone!
March 25th, 2007 at 6:10 pm
Okay, here are my top balanced or equity fund picks. Highest risk among funds but with the best returns especially when the stocks are booming. Take it from eight years of personally investing with them! I hope this gives everyone an idea or two. Happy investing!
(Note: This is my personal opinion, I’m not affiliated w/ any of them and I don’t receive any compensation.)
(1) Banco de Oro Balanced Fund or Equity Fund. http://www.bdo.com.ph Probably the best deal in town, I admit being a sucker for them
- Zero fees to join, so all your money gets invested.
- Zero fee to withdraw after 30 days (1% of investment before that)
- 1% annual management fee is the lowest among balanced / equity funds
- P 10,000 minimum investment.
It’s also convenient since BDO is everywhere. Five minutes’ walk from where I am, then write a check - simple as going to 7-11
Price per unit when I started was P 1,497 last Dec 2005; now it’s P 2,282 each so I’m delighted.
(2) Philequity Fund http://www.philequity.net This good old fund has been around since 1994. I credit them for turning my P 300,000 investment last Nov 1998 into 106,590 shares worth over P 1.3 million to date! They’re the best equity fund for the past 13 years and delivered a hefty 52% return for 2006. Okay, the fees.
- Entry / investment fee is 3.5% of principal.
- Exit fee is zero after two years (1% or 2% of investment before that)
- 1.5% annual management fee.
- Minimum investment: P 5,000 initial, P 1,000 subsequent.
(3) First Metro Save and Learn Equity Fund. http://www.fami.com.ph This newbie is the best performing equity fund for 2006 - 78% return! Lower entry fees than Philequity.
(4) ATR Kim Eng Equity Opportunity Fund. http://www.mutualfund.com.ph Another newbie who also beat the PSE index for 2006 - 45% return! Lower entry fees than Philequity or SALEF. Their website is also quite helpful.
I hope others can also share their personal investing experiences, let’s compare notes
March 24th, 2007 at 2:08 pm
On the other hand, my suggestion is not to get the issue of sales load to interfere so much in your investment decisions. Minor concern na lang ito…there are more major factors to consider when choosing your mutual fund. We are not even talking here about financial planning fees or commissions you pay your financial advisers (some are on a fee basis, others on commission basis)…Kiyosaki himself even said to pay your advisers well. These entry fees or asset mgt. fees are actually what is rightfully due your fund managers for taking the load off your back of “worrying” about your money for you.
It is very disappointing to meet people who are targetting a high investment return, for example to see their money double in 5 years, but they get distressed about the 1% entry fee they have to pay. In fact sometimes, so much so that they want to take it out of the broker or the agent by asking for a discount. (Turn off talaga mga investors na ganito ugali…I just wonder, do they ask their doctors for a cut from the professional fees they pay them, say for example each time they hand P500 to the doctor’s secretary when they take their baby to the pedia?) Etc, etc, etc.
March 24th, 2007 at 10:49 am
hi, suggestion, you could include the philippine stock market forum http://www.financemanila.net/forum in your links, its very useful.
March 24th, 2007 at 12:07 am
Hey, Salve! Hope you didn’t mention my name just to test if I read your blog!
I always do, and I find it very informative and a breezy read. Hope you can also write about investing in IPOs for beginners, especially getting young people into saving and investing. Congrats again on the blog! You really rock!