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Portfolio Chunk Series: Mutual Funds 101 – Why Your Portfolio Needs This

Portfolio Chunk Series: Mutual Funds 101 – Why Your Portfolio Needs This

Mutual funds, just like stocks, are great equalizers in the investment battlefield.

If you are an ordinary citizen working hard everyday to earn money for your family then you might want to consider mutual funds as an important part of your investment.

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What are mutual funds?

Here are quick facts about the investment:

  • It is pooled money from perhaps other unknown investors (you’re identity will not be divulged to other investors) by the investment company, usually a bank or an institution. Together, money from different people form a big investment chunk which is then invested into different investment products (stocks, bonds, fixed income deposits, special deposit accounts, government issued bonds, corporate bonds, etc). 
  • You can open an account for as low as Php5,000 depending on the mutual fund company. 
  • A fund or portfolio manager manages the fund. Goal of the fund manager is to grow this big chunk of money to satisfy the investors (which could be you). Fund managers are professionals with known expertise of the market. 
  • Every time you buy or sell shares of mutual fund, there are applicable fees such as management fees (the fee you pay for the institution which manages your shares). Later on we will discuss the related fees. 
  • To date, there are four (4) different types of mutual funds in the Philippines: stock funds, bond funds, money market funds and balanced funds. You need to know your risk profile or risk appetite to determine which fits for you. Because of the different types of available mutual funds, 
  • The mutual fund is distributed to different stocks. In the prospectus, you can know the list of investment products into which the fund is invested. 
  • Every time you buy or sell shares of mutual fund, you transact according to the NAVPS (Net Asset Value Per Share). Later on we will discuss how to compute for your return. If you want to track daily NAVPS, please read related post here
  • How do you earn? You earn (paper or unrealized) profits if the current NAVPS is higher than the NAVPS at which you bought it. Second, you earn through dividends earned by the mutual fund. Third, you earn realized profits once you sell the mutual fund shares at the highest NAVPS possible. 
  • How do you lose? You lose (paper or unrealized) profits if the current NAVPS is lower than the NAVPS at which you bought it. Second, you lose or possibly at break even if you withdraw or sell your shares at a lower NAVPS or just enough to offset your transaction fees / management fees. 
  • You receive a monthly e-statement or hard copy of your statement of account detailing the quarter-end NAVPS and value of your shares. Make sure you keep a copy of your statements. 
  • You can top-up your existing shares with as low as Php1,000 depending on the mutual fund company. 
  • It is NOT covered by PDIC (Philippine Deposit Insurance Corporation). 

Now, if you are comfortable with the above and ready to create a game plan how to choose and why mutual funds, read related post here. You’ll enjoy knowing it!

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