If you will invest in stocks, you need to be involve in buying and selling. One problem is, Philippine Stocks Exchange trading hour is only from 9AM to 3PM +8GMT time between Monday to Friday. This is a problem especially to those OFW’s with a different timezone and don’t have frequent access to computer.
Alternatively, you can invest in MUTUAL FUNDS.
According to Wikipedia, Mutual fund is a type of professionally managed collected investment vehicle that pools money from many investors to purchase securities. While there is no legal definition of the term mutual fund, the term is most commonly applied only to those collective investment vehicles that are regulated and avaible to the general public for purchase.
In stocks investment, you are the one who select, buy and sell stocks. On the other hand, when you invest in mutual fund, a fund manager will handle all the money pooled from various investors and invest on your behalf. The fund manager’s action are all governed by set of rules made by the investment firm. Depending on your risk appetite, mutual funds come in various package. Each have different investment platform on where the fund will be invested. Like any other investment, mutual funds also involves risk. Higher yielding mutual funds package involves also higher risks.
FAMI, one of the best mutual fund company in the Philippines offers 4 types of funds you can select to invest.
SAVE & LEARN EQUITY FUND (SALEF) – This is an actively managed portfolio of selected stocks with strong balance sheets and attractive valuations. Its goal is to provide growth through long-term capital appreciation. It is an ideal investment for investors seeking high growth with high risk. Base on below result, from 2006 to 2011, this fund grows at an average rate of 29% per year.
SAVE & LEARN FIXED INCOME FUND (SALFIF) – A mutual fund invested in a well-managed portfolio of selected high grade fixed income generating instruments, such as bonds, commercial papers, and other money market instruments. Its goal is to provide as high a level of income as is consistent with preservation of capital and liquity. This is best suited for those who desire low to moderate income growth with low risk. Base on below result, from 2006 to 2011, this fund grows at an average rate of 22.6% per year.
SAVE & LEARN BALANCED FUND (SALBF) – A mutual fund invested in a mix of fixed-income securities and stocks. Its goal is to provide total return consisting of as high a level of current income as is consistent with preservation of capital, liquidity and long-term capital appreciation. It is ideal for those who desire moderate growth and willing to assume moderate-to- high risk. Base on below result, from 2007 to 2011, this fund grows at an average rate of 8.43% per year.
SAVE & LEARN MONEY MARKET FUND (SALMF) – A mutual fund classified as low risk. Its goal isto provide good return through current income by investing in fixed income instruments and securities with short term investment period such as government securities, time deposits, short-term deposit agreements, among others.
Other mutual fund companies may offer different package, but the idea is still the same.
Before you invest in any mutual funds, you need to know all the fees involve. In Philippines, all mutual funds are FREE from any taxes unlike the bank’s time deposit in which the earnings are subject to 20% tax. Opening an account is free but there are some charges you need to take a look at.
Take a look at below fund example, FAMI SALEF. It shows the full details of the fund, portfolio, minimum investment, minimum top up investment, exit fee and sales load. Since there is no registration fee, fund manager and investment firm get their salary from what we call sales load, management fee and exit fee depending on the amount of your investment. Sales load is deducted from every investment you made. Let’s say you invest Php 5000, it will only be Php 4900 because of the sales load. The higher your fund is, the lower fee you will pay.
From time to time, you will see the update of your mutual fund from their respective websites such as this one.
Advantages of Mutual Funds (from FAMI website)
Professional Management The money accumulated in a mutual fund is managed by professionals who decide on behalf of the shareholders on investment strategy. These professionals choose investments that best match the fund’s objectives as described in the prospectus. Their investment decisions are based on extensive knowledge and research of market conditions and the financial performance of individual companies and specific securities.
Diversification Fund managers typically invest in a variety of securities, seeking portfolio diversification. A diversified portfolio helps reduce risk by offsetting losses from some securities with gains in others. The average investor would find it expensive and difficult to construct a portfolio as diversed as that of a mutual fund. Mutual funds provide an economical way for average investors to obtain the same kind of professional money management and diversification of investments that is available to large institutions and wealthy investors.
Liquidity Liquidity is the ability to readily convert investments into cash. Other investment products require investors to find a buyer so that he can liquidate his investment. That is not the case with mutual fund shares because the fund itself stands ready to buy back these shares at the prevailing Net Asset Value Per Share. While the law provides that the redemption proceeds must be given within seven (7) banking days from the date of the redemption request, most funds are able to pay the redemption proceeds with 2 to 3 days. Mutual funds are, therefore, considered very liquid investments.
Safety Mutual funds are highly regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act and its implementing rules and guidelines. They are prohibited from investing in certain investment products and from engaging in certain transactions. They also have to submit regular reports to the SEC and the shareholders as well.
Daily Pricing Mutual funds must calculate the price of their shares every business day. Investors can sell (redeem) some or all of their shares anytime and receive the current share price, which may be more or less then the original price.
Voting Rights Mutual fund shareholders are part owners of the fund and are therefore entitled to vote during the funds’ annual shareholders’ meeting. Potential Higher Returns Because a mutual fund is managed as a single portfolio, it is able to take advantage of certain economies of scale. For instances, with its millions or billions under management, it can negotiate for lower stockbrokerage fees or command higher interest rates on fixed-income investments.
Tax Free Income generated by mutual fund shareholders are exempted from capital gains tax as stipulated in the Comprehensive Tax Reform Program.
Mutual fund requires long term investment to get the best result. Image if you are investing Php 1K every month for 15 years, you will be a millionaire by then.
Opening an account is easy. Depending on which mutual fund company you want to invest, they have different application forms and procedure to follow. For OFW, you can open an account while abroad. You can download the form from their website, deposit the initial fund and send the forms and bank receipt to their address.
So, are you going to open an account now? Share your experience to other people. If you have any questions, feel free to leave a comment or contact me via my fanpage in Facebook.
P.S. A year ago, I do not know anything about investment. Then I joined Truly Rich Club by Bo Sanchez. It was the best decision I ever made in my life. Brother Bo is a spiritual preacher and at the same time, financial literacy advocate whose purpose is to help people become rich in order to serve the LORD with the money that they have. He guided me along the way, explaining how I can manage my money and make it work hard for me. Now I’m investing in stocks and mutual funds and have a clear path for my future. Soon I’ll open UITF account as well. All are made possible by his guidance and teachings on every steps to become an investor. Being OFW isn’t forever, this is my EXIT PLAN. It’s amazing how his teachings change my life. I’m inviting you to join the club too, JOIN TRULY RICH CLUB. If you have any question, feel free to leave your comment below. CLICK HERE TO JOIN