th images menu user export search eye clock list list2 arrow-left untitled twitter facebook googleplus instagram cross photos entrep-logo-svg

What Are Mutual Funds And Should You Invest In Them?

Time to roll the dice
By Khatrina Bonagua for FHM.com.ph |

If you want to invest in the stock market, but have no idea how it works, then learning about mutual funds is the way to go.

 

According to Senior Marketing Director, International Trainer, and Financial Coach at International Marketing GroupBryan Jay Maningas, simply put, mutual funds investment is a process wherein you indirectly invest in the stock market. But before your start throwing your money at mutual funds, you should know exactly what they are and how they work.

 

 

 
 IMAGE Pexels

 

 

“Normally, in the stock market, you are the direct investor/trader, meaning you are the one who will manage your own portfolio," Maningas explains. "You are also the fund manager who will decide what company shares and stocks you’ll buy. When you directly invest in the stock market, you need to do some research and you should be knowledgeable in technical analysis.” 

 

He shares: "Meanwhile in mutual funds, you are the indirect investor, as there’s a professional fund manager who will manage your investment. You’re not the one who decides in the buying and selling of share/stock of the companies. And you don't have to study the technical analysis, as someone is expertly handling your money for you."

 

Also, you must know that mutual funds are combined money from other fellow mutual funds investors. That's why it's called "mutual" in the first place. Maningas explains: “For example, I have worth P100,000 to invest, P10,000 investment from your friend, and another P5,000 from you. Our money will be combined by the fund manager, and since we have ample amount of money, we can now invest in companies like Jollibee, SM, Ayala, Globe, PLDT, Meralco, GMA, ABS-CBN, and more. Eventually the earned money will be returned to us, the investors."

 

Here’s a detailed example on how you'll earn:

Scenario:

Mutual Fund Company has earned 5 percent.

 

Breakdown:

P100,000 investor will earn P5,000 (P100,000 x 5 per cent)

P10,000 investor will earn P500 (P10,000 x 5 per cent)

P5,000 investor will earn P250 (P5,000 x 5 per cent)

For investment beginners, mutual funds are the best way to start because:

 

 

1. It is professionally managed

“If you are new to investing, it's best to entrust it to the experts (the professional fund managers)," Maningas advises. "And when you already know how the stock market works, that’s the right time to start in direct investing.”  

 

 

2. It is very liquid

This means that you can do whatever you want with your money. You can even withdraw your investment any time, though some mutual fund companies have charges unless you finish the holding period. “Mutual funds are like banks, the only difference is in a bank you can easily withdraw thru their ATM, while in mutual funds it takes 3 to 7 days before you can get your money.” 

ADVERTISEMENT - CONTINUE READING BELOW

 

Of course, another major difference is that bank deposits (up to Php500,000) are insured by the government while mutual fund investments are not.

 

 

3. It has low minimum investment requirements

For as low as P5,000, you can already open a mutual funds account. That means that even if you’re a minimum wage earner, you can start investing in the stock market any time you want. Some companies even allow mutual fund investment for as low as P1,000—you can just add more whenever you want to.

 

 

4. It is diversified

“You won’t easily lose money in mutual funds because it is diversified. Meaning, you can put your money in several companies all at once,” Maningas notes. “Let’s say, three companies did not perform well (for example: PLDT, Meralco, BDO), there;'s no need to worry since you still have other companies which are still earning for you.”

 

 

5. It is very transparent

Once you've invested in mutual funds, you will receive a statement of account (SOA) quarterly indicating how many shares you have in your chosen mutual fund companies. “And since you’re part of the company, you have the privilege to attend shareholder’s meeting regarding the performance of your investments. In mutual funds, you instantly become a shareholder or stockholder of a company.” 

 

 

6. It is tax free

The best thing about investing in mutual funds is that you get the whole amount of money you earn, sans the tax. If you have P100,000 in mutual funds, you can withdraw it as whole as P100,000.

 

 

Take note, however, that since mutual funds deals with indirect investing, you have to pay your professional fund manager for his service. You'll also have other charges such as an Entry Fee, Management Fee, and Exit Fee. No worries, though, as some brokerage companies offers Zero Load Fee (no charges).

 

 

 

This story originally appeared on Fhm.com.ph.

* Minor edits have been made by the Entrepreneur.com.ph editors.

Latest Articles

What Opportunities are Investors from Other ASEAN Countries Seeing in the Philippines?

A look at the biggest projects registered by Southeast Asian firms with the gov't in the last 6...

byPauline Macaraeg | November 19, 2017 09:00:00

10 Commandments of Successfully Managing a Business Crisis

Commandment number one is beginning preparing before anything has gone wrong

byTor Constantino | November 19, 2017 08:00:00

Help Is on the Way! (for 5 Common Obstacles Every Entrepreneur Faces)

A little creative thinking can solve big problems

byThomas Smale | November 19, 2017 06:00:00

10 Ways You're Being Tracked Without You Knowing It

Everything we do online and with technology leaves a footprint

byNina Zipkin | November 19, 2017 02:00:00

How to Teach Your Daughter Girl Power, According to This Self-Made Billionaire

Teach these lessons to your girls so they can grow up to be strong, confident and happy

byKitty Elicay for SmartParenting.com.ph | November 19, 2017 00:00:00

How Much Does it Cost to Review for the Bar Exams in the Philippines?

The fees vary but are roughly equivalent to new college graduates’ average starting monthly salary

byElyssa Christine Lopez | November 18, 2017 09:00:00

The 3 Types of People at Work Who Waste Your Time and How to Deal With Them

Do any of these time suckers work at your company? Here's how you can avoid them

byDan S. Kennedy | November 18, 2017 08:00:00

by |

5 Big Mistakes Young Entrepreneurs Just Keep Making

The reality of running a high-growth startup is that the company is your boss

byDeep Patel | November 18, 2017 06:00:00

Entrepreneurs Aren't Risk-Seekers -- They Just Handle Risk Better

Managing risk is in entrepreneurs' DNA

byJohn Suh | November 18, 2017 02:00:00

Billionaires Are Teaching Their Kids Mandarin and You Probably Should, Too

There's a reason Mark Zuckerberg learned Mandarin

byYsa Singson for Cosmo.ph | November 18, 2017 00:00:00

Hershey Hilado, Homeless Ilongga Turned Aussie Millionaire, Topbills Speakers at Nov. 18 Entrepreneurship Conference

Event in Miriam College Quezon City is part of Global Entrepreneurship Week celebration in the...

byPauline Macaraeg | November 17, 2017 10:00:00