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Top 4 factors to consider in choosing an investment fund

Time for you to know about pooled funds, mutual funds and UITFs
By Rienzie Biolena |



Everyone has goals—a comfortable lifestyle, secure retirement, funding for their children’s education, even vacations. They’re all within your reach if you invest your money and do it wisely.


As an entrepreneur, however, you may have difficulty in managing your investments. This is because your time, effort and energy are devoted to managing the business. That is why pooled funds are perfect for you.



Basically, pooled funds are instruments that gather investors’ money, hence the term pooled. The pooled money, in turn, is managed by a fund manager that does the investing: what stocks or bonds to buy, when to buy and when to sell. This kind of setup is therefore perfect for entrepreneurs as you need not worry about timing the market, doing research and trading.


In the Philippines, pooled funds come in two variants: unit investment trust funds (UITF), which are offered by banks; and mutual funds, which are offered by asset management companies. Currently, there are more than 150 pooled funds in the market, in different denominations and classes (money market/bond/balanced/stock funds).


With so many products in the market, how do you know which fund to pick?


First, keep in mind the four pillars in choosing an investment outlet: the investment objective, investment horizon, cash requirements and risk appetite.



The investment objective refers to whether the money invested is for capital preservation, appreciation, growth or aggressive growth. It can also include specific financial goals like building up a retirement fund, preparing for education funding, or maybe a vacation down the line.


Investment horizon is usually classified into three: short-, medium- and long-term. A short-term investment horizon is usually defined as less than five years; i.e. money needed within five years. A medium-term horizon is five to 10 years, while long-term is 10 years or more.


Cash or liquidity requirements refer to cash flow that would be needed in the future.


Lastly, risk appetite refers to the investor’s attitude toward taking risks in investing, whether conservative, moderately aggressive, or aggressive.




These four factors should come first before choosing any investment. And it is at this point that the concept of “matching” should be introduced. Matching means that the investment instrument should “match” the investment goal. Therefore, long-term investment goals (like retirement or education for a child) should be put in long-term investment outlets, medium-term goals (like grand vacations or purchase of a home) into medium-term outlets, and short-term goals (like emergency funds) into short-term investments.


Typically, the pooled funds that invest in the stock market are ideal for long-term investments as they give high returns, given enough years have passed. Funds that invest in both bonds and stocks, called balanced funds, on the other hand, are recommended for medium-term goals, as they give the potential higher returns of the stock market, while the riskiness is tempered by investments in the bond market.


Bond funds, meanwhile, are good for short-term investments as they give relatively steady returns. It needs to be mentioned, though, that money market funds can also be ideal for short-term investments, especially if the money is needed within one to two years.



After determining which type of fund to pick, then you may do more research on them. Websites like (for UITFs) and (for mutual funds) have reliable information on the funds. They also show historical performance, even how the funds have performed versus their peers over the previous years. Though past performance is not a guarantee of future results, this gives you a feel of how the fund has been managed and how it has fared versus its competitors.


In evaluating a fund, it would be good to compare it relative to its benchmark and its peers. Though there is no one standard for a benchmark, this would again put into perspective the fund manager’s skills in beating their own internal standards of performance. Peer performance, on the other hand, sets one fund manager against another—who are the top performers given a particular asset class.



Historically, though, no one fund has consistently topped the rankings. As an alternative, you may opt to look for the consistent top 25 percent in terms of ranking versus peers. Performance may vary, but consistency is key in terms of investing.


Also consider the size of the fund. The smaller the fund, the more agile the fund manager can go in and out of the market, and generate more trading returns. As the fund gets bigger, it may not perform as well as before, since it would not be able to move as freely. It is much like steering a boat versus a big ship.


Lastly, consider consulting a professional who is an expert on the available funds, not just in one institution, but in the broader market as well. An investor’s portfolio can have different instruments from several institutions, and an objective and unbiased expert can guide you in choosing the winning fund.








This article originally appeared in the September 2015 issue of Entrepreneur Philippines magazine. Minor edits have been done by

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