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!
April 5th, 2007 at 10:09 am
@ali:
nope, i didnt take your analogies in the wrong context. they were simply bad analogies.
what you shouldve made reference to were ripe apples versus, well, “unripe” ones…but make no mistake–they are still both apples.
i thought my “mba type” questions were simple enough. simple enough that a “satisfied client” offered answers. they were basic questions i would ask before plunking down money into a fund. its not rocket science. and it was addressed to anyone out there who has answers. meaningful answers.
my comments shifted to philequity bec thats what hachiko is most familiar with. to his credit, he did attempt to answer my queries, albeit they were unsatisfactory and only confirmed my doubts about that fund.
a “sweeping generalization” may have been a bit much, and its true some of the other prospectuses may contain more information, information that may be at par with foreign funds. now that’s moving in the right direction. but if i had the time to pore over all 26 prospetuses i wont be surprised to find majority in the same vein as philequity.
as i mentioned previously, im all for the growth of the phil mutual fund industry. and i believe investors asking the right questions, asking for accountability and credibility from the funds and its managers are very strong foundations for growth.
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as for the euro fixed income fund, i was referring the fact that its not economically viable, in my opinion, to a fund manufacturer. i just dont think that filipino investors are sophisticated enough to even think about the impact (or lack of) of currency in their portfolio. plus, even if there are those who are sophisticated enough, there’s simply not enough money to go around.
there are also other layers of diversification to think of ahead of currency, e.g. how about exposure to the nasdaq? european equities?
sector plays?
finally, i dont think phil mutual fund salesmen are sophisticated enough themselves to even try and explain the impact of currency exposure and fluctations to one’s portfolio.
you can try and prove me wrong: how much assets by way of new purchases (i.e. excluding seed money) have come in to that euro fixed income fund?
and sorry, i dont even want to comment in detail on your example there about why exposure to a 3rd currency with a 100k PhP portfolio would be beneficial bec of the initial investment requirements.
are you sure you dont have any vested interest? arent you on mutualife’s payroll?
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you said “we have fund proponents that would have principals larger and more respected than most of the fund providers in north america or elsewhere.”
really? care to name a few? what do you really mean by “fund proponent?” i find it hard to believe that principals such as you describe can be larger and more respected than where managed money is already in the trillions of dollars.
and so by virtue of these so called fund proponents you purport the phil mutual fund industry to be “mature”? i beg to differ, good sir. a child with an adult standing behind him does not make the child “mature.”
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should investors buy phil mutual funds? absolutely. what i’m lobbying for is that they not invest blindly–at least know who’s investing for you and how theyre doing it so there’s no surprises (and lost savings, fortunes and lawsuits LOL) should the proverbial sh*t hit the fan.
again, demand credibility and accountability. heck you’re paying for it.
April 5th, 2007 at 6:20 am
@ oda, very thought provoking questions…
April 5th, 2007 at 6:09 am
hi oda,
my apologies if you might have taken my analogies in a different context
my apples to oranges analogy refers to 2 different time periods along a time line of industry development, the phil mutual fund industry at present may be likened to the canadian industry what, ten to fifteen years ago?
my grade school to mba types analogy refers to the way questions are being asked from a mutual fund professional like yourself to somebody who obviously is not a member of the industry and just so happen to be a happy satisfied client who is sharing her experiences.
i have no vested interest as i have already “retired” from the industry after twelve years of nurturing it in its early stages, my comment on the question on whether i’ll invest in a local fund is made as an “investor” as i have most of my retirement money invested in local funds, its just a case of putting my money where my mouth is
a sweeping generalization might be unfair as philequity is only one of many funds offered locally, if you care to look at prospectuses of funds offered by philam etc.. the information on fund managers, portfolio allocation would be among the information included.
yes, the industry is young but it is not in any way immature, as we have fund proponents that would have principals larger and more respected than most of the fund providers in north america or elsewhere.
diversification is made in the context of one’s investment portfolio, if i have a Php 100,000 portfolio in peso or dollar instruments, the access to a third currency like the euro would be an advantage as the euro fund’s initial investment requirement is only 100 euros or about Php 6,500 at the current exchange rate. minimum for dollar funds is 100 usd while pesos is at 5,000 pesos
thanks
April 4th, 2007 at 9:40 am
@ali:
you also said:
“a closer review of a fund’s prospectus would give the following information ;who are the investment managers, the portfolio allocation and its risk profile and other pertinent information needed to make a prudent decision”
i dare you. pls point out exactly where in the philequity prospectus i can find the managers, the allocation and the risk profile of the philequity fund.
April 4th, 2007 at 9:29 am
@ali:
you said:
“the investment objectives of phil mutual funds as defined by the investment company act are as follows: growth-equity and index funds, growth/income-balanced funds, income-bonds and money market funds.”
LAWL.
good sir, these are NOT investment objectives.
these are TYPES of mutual funds.
perhaps you were right about those grade school students.
LAWL.