Halos araw-araw, may mga nagtatanong sakin ng “Aya, wala kasi akong oras para aralin ang stock market at bantayan ito, ano pa ba ang options ko?” o kaya naman, “Aya pwede bang ikaw nalang mag-manage ng pera ko?”
I always answer them, if you do not have the time, patience, and expertise to monitor the stock market, you have an option to invest in a mutual fund.
What is it?
Ang mutual fund ay ang pinagsasamang pera ng iba’t ibang investors at ito ay pinangangalagaan ng isang fund manager. The fund manager will then invest the money in different instruments like stocks, bonds, or both, that can potentially make the money grow long-term.
A Jeepney Ride to Mutual Funds 101
If you are an avid reader of our blog, you are already used to the concept that investing is a journey. In order to get to your destination of financial freedom, you can ride different vehicles to get there.
When you invest in the stock market yourself, para kang nag-mamaneho ng sarili mong kotse. Whether to turn left, right, slow down, or go faster – diskarte mo na yan! Ang importante lang, you SHOULD know how the stock market works and the risks involved, the same way you should know how to drive a car safely.
But if you don’t know how to drive, pwede kang mag-jeep! At sa pagsakay mo sa jeep, kasama mo sa byahe ang iba’t ibang pasahero na kapareho ng ruta ng pupuntahan mo. Para din sa mutual funds where the passengers are investors like you and the jeepney driver is the fund manager.
You trust that the driver will get you to your desired destination safely, the same way you will entrust the fund manager your money, keep it safe, and make it grow. And the same way you pay the jeepney driver, investing in mutual funds has fees too.
The Different Routes
Jeepneys have different routes which tells us where they will go, pick-up, and drop-off passengers. Depending on their specified route, they cannot go anywhere when they feel like it.
Mutual Funds have “routes” too! As I have mentioned earlier, the fund manager can only invest in an instrument depending on how the fund was set-up. To understand this better, here are the different types of mutual fund:
1. Money Market Fund
Kung sandali lang ang gusto mong byahe, at kakailanganin mo yung pera ng madalian, you can get a money market fund where the money is invested in short-term debt securities (bonds). It’s less risky than other funds, but it also has low returns.
2. Bond Fund
Kung kakayanin mo naman ang byahe na medyo matagal ng kaunti, meaning you’re somewhat in between short-term and long-term investing, you can consider investing in a bond fund.
Simply put, ipapautang ang pera sa gobyerno o sa mga company sa Pilipinas kung saan tutubo ito ng interest. It has lesser risk than other funds, at mas malaki ng kaunti ang returns compared sa money market funds.
3. Balanced Fund
Isa pang bagay na mutual fund para sa medium-term investor ay ang balanced fund.
The money is invested in bonds and also in the stock market. If you’re willing to take a risk, but not too much, and you want higher earning potential than a bond fund, this is an option for you.
4. Equity Fund
Lastly, kung kaya mo naman ang malayuan na byahe na tatagal ng 5 years or more, at naiintindihan mo ang mga risk sa stock market at willing ka naman tanggapin ito para sa posibilidad na mas malaking kita ng pera mo, equity fund ang bagay sayo.
There are more types of funds depending on the company offering them.What’s important is that you know:
Where does the money go?
How long can you wait? and
How much risk can you take?
How You Make Money
You earn in mutual funds through price appreciation. When you invest in a mutual fund, you are buying shares of that particular fund based on its NAVPS or net asset value per share. Tumataas o bumababa ang NAVPS depende kung lumalago o hindi ang pera kung saan nag-invest ang fund manager.
If the NAVPS of the mutual fund where you invested appreciates, you can sell your shares for a profit. Likewise, if the NAVPS depreciates, you may incur a loss if you sell.
What is the best?
There are a lot of companies in the Philippines that offer different types of mutual funds. I hope by now, the very first thing you ask whenever you are looking at any investment is whether it beats inflation or not. (Read: Every Filipino’s Guide to Inflation)
To know the daily performance of legitimate mutual fund companies in the Philippines, go to the official website of the Philippine Investment Funds Association (PIFA) at www.pifa.com.ph
Is it for you?
So if you want to be diversified, invest a small amount, and have someone who will do the thinking and monitoring of your investments – mutual funds MAY be the most suitable investment for you!