Mutual funds are an excellent way to invest your money, especially if you want to diversify your portfolio. This can also be a good investment tool for those who are starting on investing.
You can start investing in mutual funds with as little as Php1,000 to Php5,000, and you can choose from different options based on your preferences or risk appetite.
We will discuss more about mutual funds in this article for you to have a better understanding of this type of investment before you can dive into investing with one.
What are Mutual Funds?
“A Mutual Fund is an investment company that pools the funds of many individual and institutional investors to form a massive asset base. The assets are then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments. People who buy shares of a mutual fund are its owners or shareholders. ” – mutual funds definition from PIFA.
Basically, the mutual funds companies collect investments from different people or companies and invest them properly through their professional fund managers. This way you can start investing with a small amount of investment.
With Mutual Funds the fund manager will do the buying and selling of securities like stocks and bonds for you so you don’t have to worry about selecting individual stocks or bonds yourself.
Companies offering mutual funds here in the Philippines are big investment companies such as ALFM, Philequity, Philam, Sunlife and ATRAM under BPI so they are generally safe investments.
How to Earn Money from Mutual Funds
The goal of investing is to earn money. So how does mutual funds help you earn money?
1. You can earn money from mutual funds through Dividends.
Since your mutual funds are normally invested in securities, these securities earn dividends and these dividends will be distributed to all the investors of the mutual funds.
You can reinvest these dividends to purchase more units.
2. You can earn through Capital Gains.
You can have capital gains if the fund manager sells stocks from the portfolio at a higher price than it was bought. Mutual funds normally distributes these capital gains pro-rata to the investors.
3. You can also earn money if the price of the Mutual funds or the Net Asset Value (NAV) went up.
If you hold your mutual funds for long period and the price went up then you can earn money by selling it at a higher price. Example you bought it at Php10.00 and hold it for couple of years the price goes up at Php30.00 then you get a Php20.00 earnings per stock (less admin fees).
This is also called capital gains.
Different Types of Mutual Funds
Before you start investing into mutual funds, it’s best to understand the different types of mutual fund investments being offered by these mutual fund companies.
Mutual fund companies normally offer all types of mutual funds so depending on your risk tolerance you have to choose properly and understand them before buying any of these mutual funds.
Also understand that mutual funds still carry risks and the level of risk depends on what type of mutual investment you will choose.
There are four main types of mutual funds.
Bond funds
“A bond fund, also referred to as a debt fund, is a pooled investment vehicle that invests primarily in bonds (government, municipal, corporate, convertible) and other debt instruments, such as mortgage-backed securities (MBS)” from Investopedia.
These types of mutual funds are suitable for low to moderate types of investors.
Money market funds
These types of funds are normally invested in highly liquid, short-term instruments. They normally have a very low level of risks so it’s best for people with low risk tolerance to investing.
Balanced Funds
These funds aim to generate returns based on both bond and equity investments as well as a combination of other asset classes such as real estate or gold. While they may not be as volatile as other types of funds (i.e., growth or value), they still offer higher returns over short periods but tend to lose money in bad times like when there’s an economic crisis or market crash.
These types of investments are suitable for investors who has a moderate risk tolerance.
Equity Funds
This type of mutual fund invests primarily in stocks which can make them risky if prices fall suddenly due to global events. However, if you’re willing to take on more risk than most investors are comfortable with then you can try these types of mutual funds as they can give higher return.
This type of investments are for investors with a high level of risk tolerance to investing.
They are also for people with long term investment goals.
Why Invest in Mutual Funds
There are several advantages to investing in mutual funds. Some of these are already mentioned above but let’s go ahead and discuss other advantages of investing in mutual funds.
Diversification
With mutual funds you will be able to diversify your investment because the fund managers will be investing in different types of securities or investment vehicles.
There are different options for mutual funds and sometimes they combine stocks, bonds and other types of investments all in just one mutual fund investment.
This lowers the risk of the investment as well.
Affordable
Mutual funds are more affordable compared to investing directly into stocks. You will need to have a bigger amount of money to be able to purchase stocks especially from the big companies like Jollibee, BPI or PLDT.
With mutual funds the fund manager will collect all the small investments and invest them in these big companies. That’s why you can always start investing with small amounts.
Expertise of Fund Managers
If you want to invest directly in securities like stocks, you need to study and make time to learn and manage your investments. While if you invest in mutual funds, you don’t have to worry about learning those technical terms in investing.
Your investments will be managed by experts and all you have to do is continue investing small amounts regularly.
Liquidity
Mutual funds can easily be converted into cash by selling it based on its market value so you don’t have to wait long for it to be converted into cash just in case you need to sell it to them.
If you’re selling them though, you have to take note that you may lose some money if the market value went down.
Disadvantages of Investing to Mutual Funds
Control
When investing in mutual funds, you do not choose which companies to invest into. For example, you chose the Equity type of mutual funds. You cannot choose which specific stocks to buy.
The fund managers will decide which stocks they would want to invest the pool of money in.
Costs
For mutual funds, you also have to check the fees being charged by the company for your mutual fund investment. Since the fund is going to be managed by fund managers, there could be additional charges being applied.
Market Volatility
Like any other investments, there is the risk of losing your money from this investment. Expert fund managers are still not a guarantee of good return of investments.
Your investment is still subject to price fluctuation in the market.
Ways of investing in Mutual Funds.
There are two ways you can invest into Mutual funds. Both ways offer online options so you don’t have to worry about this.
Buy directly from the company.
Buying mutual funds is now easier and faster because most of the companies have their own website and you can create an account with them or purchase online.
You can visit their websites and follow the instructions on how you can create an account with them.
Buy Through Investment platforms.
Another way you can purchase Mutual funds is through some of the investment platforms.
You can sign up to some of these platforms that are also giving you the opportunities to invest in stocks directly.
Investment Platforms for Mutual Funds:
1. COL Financial
COL Financial is an investment platform you can use to invest in different stocks. You can visit their website to sign up and start investing.
They are also offering different Mutual funds so you can use this platform to invest in some of the mutual funds being offered by different companies such as Sunlife, ALFM, Philequity etc.
This is the platform we currently use to invest in stocks and mutual funds so we will be sharing some tips on how to invest using COL Financial platform soon.
2. First Metro Securities
First Metro Securities is another investment platform that works like COL Financial. You can also learn more about them through their website but you can also use this platform to invest in stocks directly or mutual funds and bonds.
3. GCash
GCash also opened GInvest that allows investors to invest in different mutual funds.
If you have a Gcash account, you can learn more about how you can start investing using gcash here.
There are lot of other investment platforms you can find nowadays but these are the three investment platforms we currently tried so far.
Steps on How to Invest in Mutual Funds
1. Choose which way you want to invest.
We discuss two ways of investing into Mutual funds. So you have to decide if you want to invest directly to an investment company or through an investment platform.
If you want to invest into different companies then you can choose to invest through an investment platform.
2. Open an Account.
Whatever way you choose you can go ahead and open an account with the company you decide to invest into or platform you decide to use for your investment.
Visit their websites to know how you can open an account with them. Generally, you need to be at least 18 years old and have a valid ID and proof of address, as well as proof of residence.
Opening an account may take a couple of business days so you have to read and understand their account opening process first.
Most companies need to validate your identity for the registration.
3. Choose the type of fund that interests you most.
While waiting for the registration to be completed. You can start checking by reading more about the different mutual fund investments that the company you chose offers.
We also discussed the different types of Mutual funds. Now you have to decide which one is really interesting for you.
You also have to consider your risk appetite. Are you a Low risk or a high risk investor? Investment companies normally ask you to take a quiz and answer several questions to gauge your risk appetite.
Mutual fund companies normally offer different types of mutual fund investment options ranging from low risk types of mutual funds to the high risk types. For Low risk investments, you can find mutual funds that are investing into mostly bonds.
High risk investments are the mutual funds that are investing mostly into stocks and they are normally called Equity.
Read more about each of their mutual fund offers before deciding which type you would invest into.
4. Activate and Fund your Account
After completing the registration, you normally have to activate your online account.
You can also start funding your account to be able to start buying mutual funds from their platform.
The companies or platforms give you instructions to follow.
You can fund your accounts online through bank transfer or you can also deposit through their affiliated banks, whichever is convenient for you.
5. Buy your first Mutual Fund Investment
When your account and funds are ready then go ahead and purchase your very first mutual fund investment.
You can now easily buy and sell once your online account is activated.
Decide how much you want to invest monthly or quarterly or however you want and all you have to do is transfer funds to your online investment account and buy the stock you want.
You can also diversify your mutual fund investments by buying different types of mutual funds. Just make sure you understand the risk of investing into mutual funds.
List of MF based on Types in the Philippines
Here’s a list of Mutual Funds here in the Philippines, from PIFA based on the types of Mutual Funds.
Stock Funds
Here are the funds primarily invested in Peso securities (shares)
- ALFM Growth Fund, Inc.
- ATRAM Alpha Opportunity Fund, Inc.
- ATRAM Philippine Equity Opportunity Fund, Inc.
- Climbs Share Capital Equity Investment Fund Corp.
- First Metro Consumer Fund, Inc
- First Metro Save and Learn Equity Fund,Inc.
- First Metro Save and Learn Philippine Index Fund, Inc.
- MBG Equity Investment Fund, Inc.
- PAMI Equity Index Fund, Inc.
- Philam Strategic Growth Fund, Inc.
- Philequity Dividend Yield Fund, Inc.
- Philequity Fund, Inc.
- Philequity MSCI Philippine Index Fund, Inc.
- Philequity PSE Index Fund Inc.
- Philippine Stock Index Fund Corp.
- Soldivo Strategic Growth Fund, Inc.
- Sun Life Prosperity Philippine Equity Fund, Inc.
- Sun Life Prosperity Philippine Stock Index Fund, Inc.
- United Fund, Inc.
- Primarily invested in Peso securities (units)
- COL Equity Index Unitized Mutual Fund, Inc.
- Philequity Alpha One Fund, Inc.
- Philippine Stock Index Fund Corp.
Balanced Funds
Primarily invested in Peso securities (shares)
- ATRAM Dynamic Allocation Fund, Inc.
- ATRAM Philippine Balanced Fund, Inc.
- First Metro Save and Learn Balanced Fund Inc.
- First Metro Save and Learn F.O.C.C.U.S. Dynamic Fund, Inc.
- NCM Mutual Fund of the Phils., Inc.
- PAMI Horizon Fund, Inc.
- Philam Fund, Inc.
- Solidaritas Fund, Inc.
- Sun Life of Canada Prosperity Balanced Fund, Inc.
- Sun Life Prosperity Dynamic Fund, Inc.
Primarily invested in Peso securities (units)
- Sun Life Prosperity Achiever Fund 2028, Inc.
- Sun Life Prosperity Achiever Fund 2038, Inc.
- Sun Life Prosperity Achiever Fund 2048, Inc.
Primarily invested in foreign currency securities (shares)
- Cocolife Dollar Fund Builder, Inc.
- PAMI Asia Balanced Fund, Inc.
- Sun Life Prosperity Dollar Advantage Fund, Inc.
- Sun Life Prosperity Dollar Wellspring Fund, Inc.
Bond Funds
Primarily invested in Peso securities (shares)
- ALFM Peso Bond Fund, Inc.
- ATRAM Corporate Bond Fund, Inc.
- Cocolife Fixed Income Fund, Inc.
- Ekklesia Mutual Fund Inc.
- First Metro Save and Learn Fixed Income Fund,Inc.
- Philam Bond Fund, Inc.
- Philam Managed Income Fund, Inc.
- Philequity Peso Bond Fund, Inc.
- Soldivo Bond Fund, Inc.
- Sun Life of Canada Prosperity Bond Fund, Inc.
- Sun Life Prosperity GS Fund, Inc.
Primarily invested in foreign currency securities (shares)
- ALFM Dollar Bond Fund, Inc.
- ALFM Euro Bond Fund, Inc.
- ATRAM Total Return Dollar Bond Fund, Inc.
- First Metro Save and Learn Dollar Bond Fund, Inc.
- PAMI Global Bond Fund, Inc
- Philam Dollar Bond Fund, Inc.
- Philequity Dollar Income Fund Inc.
- Sun Life Prosperity Dollar Abundance Fund, Inc.
Money Market Funds
Primarily invested in Peso securities (shares)
- ALFM Money Market Fund, Inc.
- First Metro Save and Learn Money Market Fund, Inc.
- Sun Life Prosperity Peso Starter Fund, Inc.
Primarily invested in Peso securities (units)
- ALFM Money Market Fund, Inc.
Primarily invested in foreign currency securities (shares)
- Sun Life Prosperity Dollar Starter Fund, Inc.
Conclusion
Investing in any type of investment is overwhelming and it really takes time to learn them first but we have to make sure we understand the investment we are trying to get before diving into it.
We hope you now have a clearer understanding regarding mutual fund investing in the Philippines. You can continue doing more research for each of the investments you choose and when you’re comfortable you can start investing in mutual funds already.
Mutual funds are still best for long term investments so assess your needs and purpose in starting an investment.
Explore PesoWiseMom blogs to understand more about earning money, saving money, investing and other online guides.
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