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SAVINGSPINAY SERIES | Day 3: 5 Bagay na Dapat Mong Malaman Tungkol Sa Mutual Fund

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Mutual Funds are by far the most popular investment vehicles for newbies. It is affordable, it is convenient and it is regulated. But investing in mutual funds have bad and ugly sides too. It is important to note that every investment has loopholes just as how every investment contains risks. 

On Day  3 we will be talking about the Five Things You Ought to Know about Mutual Fund. I will be sharing to you these secrets that you may or may not know about mutual fund investing. I hope that these information could help you assess whether investing in a mutual fund is really for you.

The Success Of Your Investment Depends on Your Fund Manager


To recap, mutual fund is a type of investment vehicle wherein the investors money is being pooled together with other group of investors and invested in objective-specific assets selected by the professional fund managers. This means that the return of your investment solely depend on the fund manager's selection and decision. 

What I Want You To Do With This Secret

  1. Choose Your Fund Manager Wisely
          Research on the track record of the fund manager. You can easily do this by examining how the fund had performed for the last 5 to 10 years. It will also help if the fund existed for a long time and is recommended by others as well. 

     2. Be informed

          Research. Research. Research. Proper research can save you tons of money from putting to the wrong investment. Read blogs, financial books and ask others who have invested about their experience. 

     3. Monitor Closely

          Reviewing your portfolio on a daily and/or weekly basis is important. You need to constantly monitor how your investment is performing. Any slight change on the performance could mean a thing to your fund manager's investment strategy. 

There Are Fees Involved

Now mutual fund is about entrusting your money to professional fund manager. Thus, there sure will be fund management services and administrative costs you need to watch out. These fees (though not that high) can still lower the return of your investment. There are asset management companies who will charge you if you redeem your mutual fund account within the first six months of investing.

What I Want You To Do With This Secret

     1. Read The Prospectus. 

          This document is very important. It gives all the information you need to know about the fund you are investing. The prospectus is found on the asset management company's websites in a PDF form and usually easily accessible and downloadable. It serves as a legally binding contract within the fund and the fund holder that includes the following information:
  • Investment Objectives
  • Investment Strategies
  • Risks Involved Investing in the Fund
  • Fund Track Record
  • Distribution Policy
  • Fees and Expenses
  • Fund Management



Investing in Top-Performing Funds Does Not Guarantee Success

Yesterday I shared a list of the Top-Performing Mutual Funds in the Philippines since last August 2015. But, be fully aware that investing in top-performing funds does not usually work. With the current situation, a top-performing fund one year is often down the next year. Take for example what happened to Security Bank's UITF. They performed so well in 2012-2014 and suddenly had a bad performance in the current year. 

What I Want You To Do With This Secret

     1. Never invest in a new fund offer. 

          It is as always safe to have your first investment in a fund that has been tried and tested. This is because New Fund Offers often than not have no assets at this point. 

     2. Have Realistic Expectations

          Your investment goals should not be based on assumptions. Investing in mutual fund though highly advantageous, does not guarantee fast returns. 

Mutual Fund Only Trade At The End of the Day

Mutual Funds do the trading (buying and selling) only on the closing price of the day. This means you can't really control how your money will turn out. The NAVPS (Net Asset Value Per Share) can only be determined at the end of the day. The fund manager will look at the current assets, determine the value and divides its number to the total number of outstanding shares. Since you are in a mutual fund, you don't have direct control on the trading. 

What I Want You To Do With This Secret

     1. Create a Broad Portfolio Income

I highly suggest that you diversify your portfolio income by investing in different type of funds. A well-diversified portfolio on different classes, instruments and fund types can earn you the most favorable return in the long run. 

     2. Invest in a Fund You Know

Don't invest in a mutual fund that you don't understand. Always invest in a fund that has good track record and invest in a diversified portfolio that answers your goals as an investor. Forget about the names, rankings etc. What matters most is you know what you are doing. The more you understand the business of the asset management company you invested with, the more you can monitor and analyze your mutual fund investment.

Safe to Secure Saving First Before Investing

Though Mutual Funds are considered safe parking lot of your money it is still better if you have guaranteed savings first before investing. Mutual Funds can be an easy way to create a portfolio income but without savings your active income may suffer. Make sure that you have reserve money for real emergencies.
What I Want You To Do With This Secret

     1. Invest with Your Surplus Money

Again, it is of high importance that you are able to keep a portion of your money on your savings before pushing the idea of investing. This way no matter what happens to your mutual fund you can still face the coming days, months and even year not empty handed.       



Top 10 Ways You Can Invest in Mutual Fund with Your Limited Income



I hope you enjoyed this SavingsPinay Series' Day 3 post. 

Do you have any question about mutual fund?

I hope you liked this post. Don't forget to do any of the following:


 


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