Mutual funds investing is a beginner-friendly way to grow money over time. Is it the right investment for you?
To decide if it’s worth investing in mutual funds, it’s important to understand what they are, how they work, and how to earn profits from them. We’re breaking down the basics for you. This guide should give you a head start on mutual funds investing in the Philippines.
What are Mutual Funds and How Do They Work?
Essentially, mutual funds are professionally managed bonds, stocks, and other investment products. When you invest in mutual funds, you entrust your money to a professional fund manager who can grow it for you. By pooling your funds with those of other investors, a larger capital is created for investing in assets such as bonds, stocks, and money market instruments.
Mutual funds work like unit investment trust funds (UITFs). The only differences between these two investment vehicles are the companies that offer them and government agencies that regulate them. Insurance providers and brokerage companies manage mutual funds, while banks handle UITFs. The Securities and Exchange Commission (SEC) regulates mutual funds companies in the Philippines. For UITFs, the regulatory body is the Bangko Sentral ng Pilipinas (BSP).
What are the Types of Mutual Funds in the Philippines?
Investors can choose to put their money in one or a combination of four basic types of mutual funds: bond, equity, balanced, and money market funds. Each mutual fund type suits a specific investment horizon (the best time frame to keep the funds invested), financial goal, risk appetite (the level of risk you can tolerate), and instrument where the pooled funds are invested.
1. Bond Funds
- Ideal for: Low to moderate-risk investors who want to protect their savings against inflation while earning higher profits than time deposits and money market investments
- Where the funds are invested: Fixed-income, long-term securities such as Philippine treasury notes and other government bonds and corporate bonds
- Investment horizon: Medium to long-term (One to three years)
- Goal: Capital preservation
- Risk appetite: Conservative to moderate
2. Equity Funds
- Ideal for: High-risk investors with experience in stock market investing who want to maximize their profits
- Where the funds are invested: Shares of stocks listed in the Philippine Stock Exchange
- Investment horizon: Long-term (Five years or longer)
- Goal: Long-term capital growth
- Risk appetite: Aggressive
3. Balanced Funds
- Ideal for: Low to moderate-risk investors who want to earn a bit higher profits than bond funds
- Where the funds are invested: A mix of shares of stocks and bonds (typically 60% stocks and 40% bonds)
- Investment horizon: Medium to long-term (Three to five years)
- Goal: Medium to long-term capital growth
- Risk appetite: Conservative to moderate
4. Money Market Funds
- Ideal for: Low-risk investors who want to prevent their money from losing its value while earning a little higher profit than regular savings or checking accounts and time deposits
- Where the funds are invested: Risk-free, short-term securities, including time deposits, government Treasury bills, and corporate bonds
- Investment horizon: Short-term (One year or less)
- Goal: Capital preservation
- Risk appetite: Conservative
How Can You Earn from Mutual Funds Investing?
Investors make money from mutual funds in three ways: asset appreciation, interest, and dividends.
Over time, when the fund you’re investing in sells securities that have increased in value, that fund has a capital gain, which is passed on and distributed to the fund’s investors.
However, if the fund manager doesn’t sell the securities that have increased in value, the shares of the fund rise in value. You may then opt to sell your shares to earn a return.
Interest and Dividends
Another way to earn income through mutual funds investing is from the annual payment of interest on bonds and dividends on stocks to the fund. You may choose to either receive the payment via check or reinvest the profit to buy more shares.
Why Invest in Mutual Funds?
Mutual funds are perfect for first-time investors, especially millennials who want to start investing but can’t actively manage their money, for the following reasons.
6 Key Advantages of Mutual Funds Investing
Over the internet, you can easily invest in various mutual funds that match your financial goal—whether it’s for retirement, your child’s education fund, or any investment objective.
2. Ability to Invest Without Blowing Your Budget
Typically, mutual funds in the Philippines require at least a PHP 5,000 initial investment and succeeding investments of at least PHP 1,000. This makes mutual funds investing affordable for newbies who don’t have much money to invest.
3. Professional Money Management
Mutual funds investors benefit from the expertise and full-time service of professional fund managers who make investment strategies and decisions on their behalf.
4. High Liquidity
Mutual funds are highly liquid investments, meaning you can buy or sell your shares immediately, usually within a business day.
5. Good Diversification
With mutual funds, your money is invested in a broad variety of assets. Through this diversification, you minimize the risk of losing your investments.
6. Safe Way to Invest
Because mutual funds companies in the Philippines are regulated by the SEC, they’re required to comply with the Investment Company Act (Republic Act 2629). They’re also banned from investing in certain assets and getting involved in certain transactions. All these things protect Filipino investors against illegal and unfair investment practices.
Where to Invest in Mutual Funds?
The fear of getting scammed keeps Pinoys from investing in mutual funds. Investment scams in the Philippines make it quite tricky to find a company to trust your money with.
Start your search for the right mutual funds company at the SEC website. As of July 31, 2018, there are 64 investment companies authorized to manage mutual funds in the Philippines. From the SEC’s list, you’ll find licensed firms where you can start investing.
Best Mutual Funds Companies in the Philippines
How to pick from among 60+ SEC-registered mutual funds companies? The fastest way to find the best company to invest in is making a shortlist of the best investment firms based on NAVPS performance. NAVPS stands for Net Asset Value Per Share that represents a mutual fund’s price per share.
Just to illustrate, here are the 10 best-performing mutual funds companies (as of August 24, 2018) that have posted the highest returns in the first eight months of the year.
|Top 10 Mutual Funds Companies (as of August 24, 2018)||1-Year Return|
|Sun Life Prosperity World Voyager Fund, Inc.||9.37%|
|Sun Life Prosperity Dollar Advantage Fund, Inc.||5.41%|
|Cocolife Fixed Income Fund, Inc.||5.38%|
|Sun Life Prosperity Money Market Fund, Inc.||2.31%|
|ALFM Money Market Fund, Inc.||2.28%|
|Philam Managed Income Fund, Inc.||1.78%|
|ALFM Peso Bond Fund, Inc.||1.6%|
|United Fund, Inc.||1.6%|
|Sun Life of Canada Prosperity Bond Fund, Inc.||0.64%|
|Ekklesia Mutual Fund Inc.||0.61%|
This table is meant to show you how to decide which mutual funds companies perform best at a certain time period. The NAVPS changes every business day depending on a mutual fund’s market performance. Thus, the figures in the table above are likely to change, too.
To get up-to-date information, check the NAVPS performance data on the Philippine Investment Funds Association (PIFA) website. The PIFA is the industry association of mutual funds companies in the Philippines.
How to Invest in Mutual Funds
Mutual funds investing is easier than it sounds. To start off, you need to set up a mutual fund account.
Steps to Open a Mutual Fund Account
1. Visit the website of your chosen mutual funds company or investment broker.
For your easy reference, here are the links to the websites of licensed mutual funds companies in the Philippines:
- ALFM Mutual Funds
- ATR Asset Management (ATRAM MF)
- Cocolife Asset Management Co. Inc.
- First Metro Asset Management Inc. (FAMI)
- Grepalife Asset Management Corporation (GAMC)
- MBG Equity Investment Fund, Inc.
- Philam Asset Management Inc. (PAMI)
- Philequity Management, Inc. (PEMI)
- Sun Life Financial Philippines
Alternatively, you can open a mutual fund account through a stock brokerage firm like COL Financial or First Metro Securities if you already have an online stock trading account with one of them. COL Financial’s COL Fund Source and First Metro Sec’s FundsMart are one-stop shops for mutual funds investing. It’s a great option if you plan to invest in both mutual funds and stocks.
2. Proceed with your mutual fund registration.
The site may require you to fill out a questionnaire to know your investment risk profile. You’ll also have to choose a mutual fund type that matches your risk profile and investment goals.
3. Download the necessary documents and forms.
These papers usually include an application form, investor profile assessment, and prospectus (a document required by the SEC that presents information about the investment offering). Make sure to fill out all the forms completely.
4. Submit all requirements.
Visit the nearest office of the mutual funds company to submit all your accomplished forms and photocopies of your valid IDs. Or you can send them via mail for convenience.
5. Fund your mutual fund account.
As soon as you receive a confirmation of your account creation, you can fund it already. Required initial deposits for mutual fund accounts range from PHP 5,000 to PHP 10,000.
At this point, you can start buying and/or selling mutual funds through your newly opened online account. Monitor your mutual fund’s performance regularly, preferably every six months to a year, to see if you’re hitting your goals through your current investment strategy.
Rather than keep all your money in the bank, consider investing a part of it. Mutual funds are a great starting point for anyone with little to zero investment experience. Once you’ve decided that mutual funds investing is the right option for you, then go for it!