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 2nd, 2007 at 3:52 pm
Hi Malou, re: investing from other countries. ATR Kim Eng seems most helpful in this aspect. Go to http://www.mutualfund.com.ph , on the left side click: “how to make investments”, then “other countries”, and follow the instructions. You can choose between their low-risk fixed-income, mid-risk balanced, or high-risk equity funds. Good luck, e-mail them if you need further help!
April 2nd, 2007 at 3:28 pm
Hey Richardson you’re lucky, you newbies can outplay the experts after all! Inq7 news this morning: “Stocks seen mixed to lower on profit-taking” (below), and I myself bought the argument that PSE index won’t rise above the 3,200 resistance level.
http://business.inquirer.net/money/breakingnews/view_article.php?article_id=58334
Ayun, the index is up 0.81% at 3,229.60 (Salve, Inquirer won’t refund my P 18 for botched forecasts, no?
). Well, it could have been the other way around, and we’ll be aping by then, but oh well, that’s luck, and it made you a few hundred (or thousand?) pesos richer. But don’t let it distract you taking a long-term perspective on investing.
So “dude welcome to the dog pound
” and hope you find our mutual quest for wealth profitable, educational and enjoyable.
April 2nd, 2007 at 8:10 am
Hi Jeff, thanks for the correction
oh silly me. Point is, I have full faith and trust in you guys to fund my future dreams, I’ve done enough due diligence to be assured all these is for real. Thanks!
April 2nd, 2007 at 6:09 am
Hi hachiko
“BSP” mutual fund rules?
mutual funds in the country are regulated under the investment company act as implemented by the Securities and Exchange Commission, these are the funds that are normally members of the ICAP
UITFs or unit investment trusts on the other hand are regulated by the BSP
thanks
April 1st, 2007 at 7:29 pm
Hi Oda, I’ll do my best to answer Philequity Fund info.
- For historical returns it’s at http://www.icap.com.ph
- For underlying holdings etc., I wish they can improve their website and post monthly performance and review on the internet. I receive mine through their Annual Reports.
- MER: is this management expense ratio? I know they charge 1.5% of net assets as management fee.
- NAV is net of all fees and all taxes.
Funds don’t exactly invest “free-rein” since they have a benchmark that must be hurdled , i.e. PSE index for stock funds, and to do so they must maintain a diversified “core portfolio” invested in major stocks and sectors. For 2006 the property sector fueled the 42% rise in the PSE (75% growth, I think).
Mutual funds can never be scams, all stocks they buy are held by a 3rd-party custodian so fund managers can’t touch it; they only receive fees for services rendered.
Oh well, just put in your money, I believe BSP mutual fund rules are at par with international standards (you can check http://www.icap.com.ph), and prospects for RP growth are realistic naman so it will support higher stock values in the future.