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 18th, 2007 at 12:00 am
@jeremy:
wow. i did miss that part. that’s sooo sneaky. that’s what we call a performance fee, and you only see that here (in n. america) in hedge funds!
definitely STAY AWAY from fami funds bec they double dip you AND charge you this performance fee.
i’m proud of you : ) you did your due diligence and came away saving the performance fee. now that’s what i’m talking about!
hey, every penny you can save on fees compounds for you down the line so kudos!
April 17th, 2007 at 5:19 pm
hi oda! you are more than helpful! i’m not that very expert in mutual fund…yet.
i overlooked that fami is basing the navps for the next banking day when you surrendered WITHIN the daily cut-off. i find this so absurd.
for sun life mutual funds, the cut-off is at 12 noon. also the same cut-off for buying.
the monthly fee i was mentioning is in pg39 of the prospectus:
*
The fees payable to FAMI, is a monthly fee equivalent to one and three-fourths percent (1.75%) per annum of the average net asset value of the Fund’s assets, computed on a daily basis. The “net asset value” shall be determined by computing the total value of the Fund’s assets less its liabilities in accordance with the procedure used in computing the net asset value of the Fund. In addition, as Investment Manager, FAMI shall be paid an incentive fee equivalent to one-tenth (1/10) of the realized appreciation in value of the Fund’s net assets in excess of the “hurdle rate” defined as either:12% or the average 91-day Treasury Bill rate for the applicable year (net of tax) plus a spread of 3% whichever is higher.
*
please correct me if i misunderstood this as a compulsory monthly charge.
luckily, i have the privilege in getting from sun life without any sales load. not that i’m egocentric, i recognize that they deserve a part of the earnings for they do the grueling financial work for me, but to be practical…hehe
probably sun life’s similarity to n.american’s fund management is because it roots from canada.
thanks a lot!
April 13th, 2007 at 1:58 am
@jeremy:
i’m reading the propectus over lunch so let me know if i didnt answer your question…
i didnt see the monthly fee you were talking about.
my take:
first off, what strikes me is the stated investment objective: “The Fund is designed to seek long-term capital appreciation by investing primarily in carefully selected listed and non-listed equity securities.”
red flag right there: NON-LISTED SECURITIES. that to me is carte blanche authorization to buy speculative junk. no matter what anybody says.
#2. double dipping on fees. you pay both a sales charge upfront, and a redemption charge upon early exit. it should be one or the other, not both. like philequity, this is absurd. talk about milking the cow LOL.
#3. youre paying more than the stated management fee. note all the “fees” chargeable by the fund. that’s on top of the management fee. that’s why i’ve been insisting on an MER figure that encompasses the total fee per yr, not the incomplete amt of the mgmt fee.
i had a quick glance at the sunlife prospectus some wks back and so far i think they’re as close as u can get to n.american type fund mgmt there in the phils.
———————
couple of other things i noticed about this (fmic) fund:
why is the redemption date the next “banking” day? all redemption requests tendered prior to the close of business should receive that day’s closing price. i dont know how the phil funds determine the cutoff time, but here, its the same cutoff as the closing of the exchange, i.e. 4 pm EST. another process the phil mutual fund industry should look at.
are the “directors” listed in the prospectus the fund managers?
the top 10 holdings account for 35% of the portfolio with the #10 holding at less than 1%. assuming the rest of the holdings are at 1%, youre looking at 65+10=75 stocks! too broadly “diversified”? meh. looks like another index fund to me.
6 of the top 10 names are directly/indirectly linked to one sector: real estate. get ready for volatility when this sector gets rocked.
and finally, wtf is “weight of money”? LOL.
hope this helps.
April 11th, 2007 at 4:01 pm
hi! dun po sa may save and learn equity. would just like to ask, how is the charges like? i’ve read in the prospectus other than the sales load and redemption fee, merong monthly charge. is this true? i asked fami by email but i havent received any reply. i have sun life equity and balanced, so far ok naman siya, was just thinking about getting save and learn equity for diversification and tempting kasi ang rates ng save and learn equity last year. thanks. hope to get info.
April 10th, 2007 at 4:58 am
@ali:
my apologies. i thought you were still on board with the maa euro fixed income fund.