How to Invest in Mutual Funds

This post is part of Your Ultimate Guide to Investing for Beginners. To read all posts in order, start with What is Investing? then continue reading the rest of the series on this page.

Let’s face it, most people are lazy including me and you. Yes, we work at what is interesting to us, but otherwise, we’d rather keep things simple. Here at Money Girl Philippines I’ve been trying to teach how to build a portfolio and invest for their goals, but some people just hate finance. And many Filipinos invest too little.

Now, here’s a simple and easy way to invest – Mutual Funds.

Are Mutual Funds for You?

If you want a diversified portfolio, invest in small amounts, and have someone do the thinking and monitoring of your investments – mutual funds MAY be the most suitable investment for you!

What are Mutual Funds?

Mutual funds is an investment instrument wherein money from different investors are combined together into funds. These funds are managed by a fund manager who invests the collected money in different instruments like stocks, bonds, or both, that can potentially make the money grow long-term. You don’t have to do any research or constant monitoring of your portfolio, the fund manager handles everything for you.

Mutual Funds are offered mostly by insurance and other investment companies (few banks have this, too) and is regulated by the Securities Exchange Commission. The value of a share of the mutual fund, called the Net Asset Value Per Share (NAVPS), is calculated daily based on the fund’s total value divided by the total number of outstanding shares.

Related Post: Mutual Fund vs UITFs
Related Post: Mutual Fund vs Stock Market Investing

How do you Earn in Mutual Funds?

If the NAVPS increases in value, you can sell your shares of the fund for a profit. Likewise, if the NAVPS depreciates, you may incur a loss if you sell.

Are there Different Types of Mutual Funds that I Can Choose from?

Yes, there are different types of mutual funds in the Philippines that an investor can choose from. Actually, there are four of them:

Money Market Funds – Super Short-term (one year or less)

  • invested in short-term debt securities (bonds)
  • very liquid so you can tap into them as needed
  • growth of your investment is conservative
  • low-risk, low returns

Bond Funds – Short-term (1-5 years)

  • invested primarily in bonds in fixed-income securities like government bonds or corporate papers issued by solid Philippines companies
  • it’s like you’re lending money to the government or to the solid companies and they promise to pay you a guaranteed (low) interest rate
  • growth of your investment is conservative
  • low-risk, but pays higher returns than Money Market Funds

Balanced Funds – Medium-term (6-9 years)

  • invested in both bonds and stocks
  • growth of your investment is moderate to moderately aggressive
  • higher growth potential than bonds but lower growth potential than equity funds
  • medium to high risk, medium to high potential returns

Stocks/Equity Funds – Long-term (10 years or more)

  • invested mostly in the stock market
  • it’s like you are buying shares of “ownership” of reputable companies listed in the Philippine Stock Exchange
  • highest possibility of growth from all mentioned types of funds
  • high risk, highest potential returns

How do I Invest in Mutual Funds in the Philippines?

Assuming the investor has understood all risks and has decided to go ahead, here are the steps to invest in mutual funds in the Philippines.

  1. Choose a fund you want to invest in. Mutual funds are usually offered by insurance companies and banks. To make things easier, you can check out this page for a list of companies offering mutual funds in the Philippines.
  2. Once you have decided which type of mutual fund you want to invest in, contact the company or visit their office where an agent will be assigned to you.
  3. Complete all requirements and fill out the application documents. You will normally be asked to complete three forms: the Personal Information Sheet, the Investor Profile Questionnaire, and the Order Ticket. The forms may vary depending on the mutual fund company but they usually have forms to get your personal details (Personal Information Sheet); identify your risk tolerance and investment goal (Investor Profile Questionnaire); and determine the shares of the fund you want to purchase (Order Ticket). Don’t forget your identification cards and your money for the initial investment.
  4. Open your investment account. Make the payment only in authorized payment centers. This can be the office of the company or a bank branch in partnership with the mutual fund. Make sure you get a copy of the payment receipt and the Order Ticket.
  5. Ask the agent how you can monitor the performance of your mutual fund. Most mutual funds report their net asset value per share (NAVPS) daily online on their company websites. Additionally, business newspapers and TV shows report on their performance regularly.

What are the Costs in Investing in a Mutual Fund?

The service provided by those who run mutual fund companies isn’t free, and comes with a cost. Here’s a quick guide to the usual costs involved in investing in mutual funds:

Sales Loads: These are one-time charges that the investor is asked to pay for buying into a mutual fund (front-end load), or for redeeming or selling shares owned in a mutual fund (back-end load).

Management fees: These are fees paid to the portfolio manager, and is usually a percentage of annual average assets.

Early Redemption Penalties: These are fees/penalties paid for redeeming/selling shares before the end of the contractual period. (By contractual period, we’re referring to an agreed-upon length of time you’re supposed to hold your shares in the mutual fund without selling them.)

Related Post: How to Invest in UITFs

Related Post: How to Invest in the Stock Market

Related Post: Where Can I Invest my Money?

Note: Before investing, remember that none of the returns are guaranteed, so have an emergency fund first so that you’re covered if the worst does happen to your investments. When choosing your investment portfolio, go with the one that most matches your risk appetite, time horizon and your financial goals.

11 thoughts on “How to Invest in Mutual Funds

  1. I’m very pleased to discover this great site. I wanted to thank you for your time due to this fantastic read!! I definitely liked every part of it and I have you bookmarked to see new things on your site.

Leave a Reply

Your email address will not be published. Required fields are marked *