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 24th, 2007 at 6:11 pm
Thanks Oda for the very incisive comments / answers.
For those interested, please try out bpitrade. I know firsthand the brokers, the brokers’ manager and the effort they put to be very transparent in everything they do.
I’m not from bpitrade and i assure everyone that i’m one of their most hard-to-pleased clients (if not the most).
April 24th, 2007 at 3:19 pm
@oda
I’ve been reading your entries in this blog for weeks now. I find them very helpful.
Would it be too much if I ask your comments about the UITFs of BDO? I’ve understood your sensible remarks about Philequity and others but haven’t read one yet about BDO.
Thanks.
April 19th, 2007 at 4:43 pm
yikes. that’s a lot of fees! thanks for the thorough analysis. i might end up adding in my sun life equity then. =)
April 18th, 2007 at 10:22 pm
@jeremy.
one last thing. i jumped at the performance fee so fast i forgot to address your “monthly fee” question.
the quote on the “monthly fee” is actually the management fee. the fund management fee, and ultimately the MER (management expense ratio) is an annual rate that’s calculated daily but charged monthly (at least here in n. america). it appears however, that fami is doing the same thing.
so bottomline, you would’ve been on the hook for:
fund MER + front end sales charges + back end sales charges (if withdrawn early) + performance fees!!!
April 18th, 2007 at 12:07 am
to clarify further its not a monthly fee. its a fee they charge if the fund performs greater than their defined “hurdle rate” of 12% which, looking at the strong performance numbers of the PSE, they bleed investors from the nose. wow. just wow. tubong macao. LOL.
to illustrate, if the return for 2007 is 20% then they charge an additional 20-12=8%*.10= .8%!!!