Have you been saving money for years? What’s the interest rate annually? Is it low as 1%?

You know, I’ve been saving money for few years but I just noticed recently that the annual interest rate is 1% which is so terrible.

I was totally disappointed for that very low rate. I tried to look for best alternatives that can assure me a higher interest rate. And guess what I found out? It’s mutual funds!

Mutual funds didn’t only gave me a higher interest rate but it also diversified my portfolio. It’s so good to invest in mutual funds. I promise! Why not give it a try?

In this blog post, I will be guiding you on how you can invest in mutual funds for you to build wealth and achieve all your financial goals in life.

Let’s begin!

What is a mutual fund?

A mutual fund is an investment vehicle that pools money from different investors (individuals, groups, organizations, companies) and invests them in different securities (stocks, bonds, commodities) for the purpose of gaining profit.

In addition, mutual funds are offered by companies instead of banks. Also, mutual funds is extremely a safe investment since it is regulated by the Securities and Exchange Commission (SEC).

When you invest in mutual funds, you buy shares and become a shareholder of that fund. Moreover, mutual funds are managed by experts and professionals called fund managers.

Types of Mutual Funds

Mutual funds have four major types in terms of their investor type, return on investment, risks profile and where it is invested.

1.Money Market Mutual Funds

Money market mutual funds are simply mutual funds which is the best option for very conservative investors. However, its share price doesn’t fluctuate in value unlike the bond funds and equity funds.

In addition, money market mutual funds is the best place to keep your emergency funds. Why?

First, money market funds offers higher and competitive interest rates comparing to your banks that gives you only a fixed interest rate of 1% annually or even lower.

Second, no one knows what will happen to the near future. You can even lose your job someday that’s why it’s very important for you to keep an emergency fund. Don’t keep it a bank! Keep it in a money market mutual fund instead!

Third, money market mutual funds is the best place to keep your money for your short term goals like a down payment for your house, a travel to Maldives or a concert ticket. Day by day, the value of your money increases which helps you then to gain more money and afford those short term goals.

Lastly, money market mutual funds is the best investment if you want to step ahead of the inflation rate. Day by day, prices of goods are getting expensive so you have to invest to beat the inflation.

Moreover, when you invest in money market mutual funds, your money is invested in different securities namely certificates of deposits (CDs), short term corporate debt, and other securities.

Money market mutual funds are just like your savings accounts. However, its main difference from the bank is that it offers more competitive and higher interest rates.

2.Bond Funds

Bond funds is a type of mutual fund issued by corporations and the government. It works just like a bond or simply loan. You lend your money and they will pay you back when the bond matures and of course with a fixed interest rate.

Bond funds are more complex compared to money market mutual funds. Why?
It’s because you have to choose the maturity date of your own bond. Some bonds matures from 5 years up to 50 years. Also, you have to take note of their interest rates. Some bond funds offers higher interest rates and some are not.

It’s also very important for you to take note that when you invest in bond funds, your fund is invested in treasuries (government), municipals, corporations and international bonds.

You also have to remember that when you invest in bond funds, there’s a possibility that you will gain more profits since there are risks involved. Bond funds pays you more interest rates compared to money market mutual funds.

If you want to invest in bond funds, you must take note that you’re willing to invest your money for more than a year since bonds don’t mature in just less than a year.

If you want to know more about bonds, you should definitely read this: How to Invest in Bonds for Beginners

Also, bond funds share price fluctuates meaning its price changes over time. It simply means that you can lose your money or gain more profits. However, if you keep your fund for a longer time, you’ll likely gain more profits.

3.Balanced Mutual Funds

Balanced mutual funds is a type of mutual fund which is a combination of bonds and stocks but gives you a higher return on investment.
You have to remember that when you invest in balanced mutual funds, you invest your money for a longer period of time.

Moreover, this is also the best type of mutual fund for your long term goals like buying a brand new sports car, a big mansion house, and so on.

Take note that this involved some risks since it is a combination of stocks and bonds. You may lose your capital or gain more profits.

4.Equity Funds

Equity funds or otherwise known as stock funds is a type of mutual fund that is invested in stocks and considered to be the most riskiest of the three types of mutual funds.

When you invest in equity mutual funds, you’re risking your investment on stocks. We all know that stocks are risky and highly volatile that is why you have to have enough knowledge before choosing this type of mutual fund.

Equity funds offers the highest interest rate of all the four types of mutual funds. However, you should take note that investing in stock funds requires patience. It takes more than a year for you to gain profit. If you’re a stock market investor, I know that you already know this one.

Suggested: How to Invest in Stocks for Beginners

There’s no success overnight. You have to wait for years for your money to grow. If you don’t want to invest for long term, then bond funds or money market funds is the best option for you.

Quick Comparison of Mutual Funds Types

Mutual Fund TypeType of InvestorTime FrameInvests inAverage Return
Money Market FundsConservativeLess than a yearShort term securities1% to 2%
Bond FundsModerate Conservative1 to 3 yearsfixed income investments2% to 5%
Balanced FundsAggressive3 to 5 yearsMix of bonds and stocks5% to 15%
Stock/Equity FundsHighly Aggressive5 years & abovestocks & other equities15% and above

Advantages of Investing in Mutual Funds

There are a lot of reasons why you should consider investing in mutual funds. Here they are:

1.Highly Managed by Fund Managers

Fund managers are experts and professionals who graduated from top finance or business schools. They are experienced managers and their job is to look for the best investment opportunities for the investors to gain profits.
So when you invest in mutual funds, you don’t have to worry analyzing investments since all the jobs are done by the fund managers.
Instead of doing some research, spend most of your time with your family and friends, visit the places you’ve never been, relax or sleep in the entire day or watch your favorite action or romantic movies on Netflix. Cool right?

Suggested: How to Budget Effectively for Beginners

2.Good Source of Income

Mutual funds is a good source of income. Whenever your investment appreciated, you can easily take the money and buy your favorite clothes, shoes, and other personal things. You can even travel to Antarctica to visit the penguins!

Mutual funds is also the best way to diversify your investment portfolio. In case you already have stocks, why not invest in mutual funds too?

Suggested: 20 Easy Tricks to Save More Money in 2020

3.Mutual funds saves time and money

Mutual funds

Let me give you a clearer explanation of this one. If ever you’re looking for the best investment in the world, you can just easily take mutual funds. Why?

As I’ve already mentioned above, mutual funds are managed by professional fund managers meaning you don’t have to do lots of research.
You just need to look for the best mutual fund, read the fund prospectus, analyze and understand it, and eventually invest in mutual funds. Easy right?

You don’t have to spend most of your time in researching and reading since all the jobs are assigned to your fund manager.

4.Diversified Investment

When you invest in mutual funds, your investment is not just invested in a single investment. Instead, your fund manager invests your money in different securities like bonds, stocks, commodities and so much more.

Diversifying your own investments is quite hard and difficult but when you start investing in mutual funds, everything becomes more easier.

Most mutual funds invests in more than 30 to even 100 securities which offers you the best diversified investment at all.

Suggested: 15 Financial Advice from the Wealthiest People in the World

5.Minimized Risks

You already know that in the world of investing, risks are involved. No investment is perfect. Everything has a downfall.
To minimize risks in your mutual fund investment, choose the best type of mutual fund that perfectly suits you so that in the end of the day, there’s no regrets from you.

6.Convenient access to money

Whenever you want to sell your mutual funds shares, you can just easily call the fund issuer and notify them that you want to withdraw your mutual fund investment.

Inform them and they will give you back your investment. However, it may take some hours for you to fully get your investment. You can receive it in the form of cash or cheque.
You can also call the fund issuer and ask them to transfer the amount to your own bank account for easier and convenient access.

How to Invest in Mutual Funds

You can start investing in mutual funds in four different ways:

1.Via Broker

If you’re a stock investor and your stock broker is COL Financial, you can easily invest in mutual funds in just few clicks.

1.Log in to your COL Financial account.
2.On the homepage, click MUTUAL FUNDS.
3.Click ORDER ENTRY and answer the CLIENT SUITABILITY ASSESSMENT (CSA) and INVESTOR RISK PROFILE.
4.After answering the forms, click on the ORDER ENTRY and enter the code of the mutual fund you want to buy. Example: XPEEQ for Philequity Fund
5.Enter the amount you want to invest. Next, preview your order.
6.Lastly, enter your COL account password.
7. Congratulations! You now have a mutual fund investment.
In case you don’t behave COL Financial account, the second option is for you.

2.Direct from the fund company

In this second option, you can easy buy mutual funds directly from the website of the mutual fund issuer.

1.Visit the official website of your desired mutual fund company.
2.Find and locate the mutual fund page.
3.Download the fund prospectus. Read and understand the fund information.
4.Also, download the Account Opening Form and Investor Risk Profiling Questionnaire.
5.Fill up the forms and prepare your TIN Number and at least 2 valid IDs.
6.Prepare the amount you want to invest.
7.Submit the forms via courier or visit the main office of the company.
8.Wait for your statement of account to be sent to your email.
9. Congratulations! You’re now an investor of mutual funds!

3.Seedbox

Seedbox is an online investment platform offered by ATR Asset Management. It helps you buy mutual funds in just easy steps.

How to Invest in Mutual Funds Through Seedbox

1.Visit Seedbox official website.
2.Click sign up button and provide the necessary details. Make sure that the information you provide are correct.
3.After filling out the online forms, click update button. An officer will set up a face to face meet up with you.
4.Select the mutual funds you want to invest in.
5.Pay your mutual funds. You can pay online via your debit card or visit your nearest bank.
6.You now have Mutual funds investment! Keep investing to achieve your goals!

4.GInvest

GInvest is a product offered by Gcash, an online payment app in the Philippines. It lets you invest in a mutual fund specifically ATRAM Peso Money Market Fund.

However, the downside of GInvest is that it only offers a single type of mutual fund which is money market fund which is perfect for conservative investors.

The advantage of GInvest is that you can invest as low as P50 ($1) and you can invest more in a daily basis to gain more profits.
As of May 18, 2020, the Net Asset Value Per Share (NAVPS) is P109.62. It gives you a return of 2.38% annually.

*Take note that the return may go up or down depending on the flow of the market.

How much is the capital for mutual funds?

Investing in mutual funds doesn’t require you to have thousands or even millions of money in your bank account. In fact, you start investing in mutual funds in just a small amount.

In the Philippines, you can start investing in mutual funds as low as P5,000. Happily, it was lowered down to P1,000 so that Filipinos who can’t afford to invest can now start investing in just a small amount.

Is it safe to Invest in Mutual Funds?

Investing in mutual funds is quite safe but the problem itself is the investor. If you’re an investor that is very conservative, then probably money market mutual funds is the best option for you.

If you want to earn more profits and willing to take some risks, then you should probably choose from bond funds, balanced funds, or stock funds.

That’s why it’s very important for you to know your investing profile so in that way, you’ll minimize loss of your money and avoid headaches.

In short, investing in mutual funds is extremely safe. However, it’s very important for you to take note that investing involves risks.

Suggested: 30 Passive Income Ideas to Earn $1000 per Month

When to Sell Mutual Fund Shares?

The best time to sell your mutual fund shares is when the share price appreciated or increased. If the price of your shares increased compared to the price you bought the shares, your investment appreciated.

Take note that mutual fund share price is identified through Net Asset Value Per Share (NAVPS).

For example: You bought 20,000 shares of ABC Fund at $25 per share. After 5 years, the share price appreciated and went up to $40 per share. Let’s now calculate how much profit you gained.

Fund: ABC Fund
Total Shares: 20,000
NAVPS: $25
Current NAVPS: $40
20,000 shares x $40
=$800,000 – $500,000 (capital)
=$300,000

After 5 years, you earned a very huge profit of dollars which is $300,000.

That basically means you earn profit from mutual funds when the share price appreciated and the best time to sell your mutual fund shares is when the share price appreciated. Easy right?

Best Performing Money Market Funds

FundNAVPS
ALFM Money Market Fund127.62
Sun Life Prosperity Money Market Fund1.2794
Philam Managed Income Fund2.3353
Sun Life Prosperity Dollar Starter Fund1.0422
First Metro Save and Learn Money Market Fund1.0384

Best Performing Bond Funds

FundNAVPS
Philequity Peso Bond Fund3.8861
ALFM Peso Bond Fund363.22
Cocolife Fixed Income Fund1.7861
ATRAM Corporate Bond Fund1.9321
Philam Bond Fund4.5162
Sun Life of Canada Prosperity Bond Fund3.1322
ALFM Dollar Bond Fund469.52
Philam Dollar Bond Fund2.2525
First Metro Save & Learn Dollar Bond Fund0.0257
Cocolife Peso Bond Fund1.2066
Soldivo Bond Fund1.0209

Best Performing Balanced Funds

FundNAVPS
ATRAM Philippine Balanced Fund1.9376
Philam Peso Balanced Fund1.5747
Sun Life of Canada Prosperity Balanced Fund3.0933
PAMI Asia Balanced Fund0.9270
Solidaritas FundN/A
PAMI Horizon Fund3.2792
ATRAM Dynamic Allocation Fund1.4925
NCM Mutual Funds of the Philippines1.7776

Best Performing Stock Funds

FundNAVPS
ATRAM Alpha Opportunity Fund0.9269
ALFM Growth Fund181.32
PAMI Equity Index Fund0.7108
Philam Strategic Growth Fund390.9300
Philequity Dividend Yield Fund0.9353
Philequity Fund27.3391
Philequity PSE Index Fund3.6834
Philippine Stock Index Fund Corporation615.67
First Metro Philippine Exchange Equity Fund3.9712
ATRAM AsiaPlus Equity Fund0.8800
Sun Life Prosperity Philippine Equity Fund2.9057

Mutual Fund Investing Mistakes to Avoid

No investor is perfect. I know that all of us make mistakes every single day but you have to be very careful when it comes to investing. Here are some mistakes commonly done by investors that you should totally avoid.

1.Failing to Read the Fund Prospectus

Before investing in a mutual fund, you have to fully understand the mutual itself first. If you already planned the company where you will be buying mutual fund, ask them their fund’s prospectus.

What is fund prospectus? A fund prospectus contains all the detailed information about the fund. Those are details about the company, its founder and fund managers, historical data of the fund and so many more. That’s why you have to read the fund prospectus first before investing in them.

If you failed to read the fund prospectus, I’m sure you’ll likely lose some of your money because of your ignorance. Also, you have to take note of the fund sales charge and redemption fees to avoid any headaches in the end.

2.Following Others’ Advices

There’s so many people out there pretending to be good financial advisers and investors. That’s why you should be very careful on your decisions. If you knew that the person is fraud, then get the hell out of that bitch.

Don’t listen to other’s advises. Instead, do your own research and read some books or any reading materials. If you really want to become successful in investing, you have to invest in knowledge.

If you want a financial adviser or planner, then probably look for the best and experienced financial planners. To make sure they’re totally legit, ask them about their previous clients, experiences, and education.

3.Failing to Know Fund Fees and Charges

You have to take note that every transaction you make whether you buy or sell your mutual fund shares have equivalent fees and charges.
To avoid any confusion, ask the company about their fees and charges so that you will be informed why your money is deducted.

4.Early Mutual Fund Redemption

It’s very important to remember that you invest in mutual fund for you to gain more profits so that you will build wealth in the near future.
The most common mistake mutual fund investors do is that they sell their fund shares in just a short period of time. You must take note that you invest for long term not short term.

However, if you invested in money market mutual funds, you can take your money not less than 90 days. But if you invest in bond funds, balanced funds, and stock funds, you have to invest long term for your investment to appreciate.

“In investing, your best asset is patience.”

Quick Summary

✓A mutual fund is an investment that pools money from different investors and invests them in different securities.
✓Mutual funds are offered by companies not banks.
✓Mutual funds are managed by professional and expert fund managers.
✓Mutual funds has 5 types: money market funds, bond funds, balanced funds, and stock or equity funds.
✓Mutual funds is a safe investment since it is regulated by the Securities and Exchange Commission (SEC).
✓Mutual funds offers you a diversified investment since it invests in more than 20 securities.
✓Mutual funds is the best option for investors who are not yet knowledgeable in stocks.
✓There are 4 easy ways to invest in mutual funds in the Philippines; via broker, from direct mutual fund issuer, Seedbox, and GInvest.
✓The best way to make money on mutual funds is to wait for your investment to appreciate.
✓You can start investing in mutual funds as low as P1,000.

That’s the end of this mutual fund investing guide. Hope you learned a lot! Please leave your comments below.

 

Reference:

Tyson, Eric (2007). Mutual Funds For Dummies 5th Edition. Wiley Publishing, Inc.

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About Author

Hi! I'm Arris Gawe, founder and author of Finance Talk PH, a personal finance blog that helps young individuals achieve financial independence. Besides blogging, I'm also a financial literacy advocate, investor, and traveler.

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10 Comments

  1. WOW! I need to learn more about mutual funds. I really appreciate your blog and these are so good and resourceful for immigrants because noone taught us anything.

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