The recent years witnessed the increase in the popularity of mutual funds in the Philippines. In case you’re wondering why, this is mainly due to the fact that most mutual funds offer a lot of advantages over a number of investment options.

But what are mutual funds and why do a lot of Filipinos consider it a sound investment? And how do you go choosing the best mutual fund for you? Let’s try to answer these questions by taking a closer look at the mutual fund industry in the Philippines.

Mutual Funds Defined

Although it may seem rather complicated, mutual funds can be defined in very simple terms. Simply put, a mutual fund is an investment company that puts together the resources of individual and institutional investors to accumulate a substantial asset base and then invest it in a diversified portfolio of security investments such as stocks and bonds for maximum gain. The professional fund manager may also decide to invest in some short term money market investments, other securities or assets, or a combination of some or all of these to achieve its goals.

Legally speaking, the investors are the rightful owners of the mutual fund company. The shares they purchased represent how big or how small their ownership is. Their shares likewise determine how much income they will ultimately generate from their investments.

So how do mutual funds generate income for its shareholders? Well, they do so in two ways. The first one is through the form of dividends and interests from its investments, and the other one is through capital gains (this happens when the value of the security increases). In any case, the mutual fund company will pass all net dividends, interests and profits to its shareholders in the form of distributions.

The Pros and Cons of Investing in Mutual Funds

Like all other investment options, mutual funds have their own unique pros and cons. On the positive side, mutual funds are managed by an experienced and capable fund manager who does all the heavy work for you – from researching and selecting the most suitable investment options to monitoring your investments. All you need to do is sit down, relax, and hopefully watch your money grow.

Your mutual fund manager will also ensure that your money is well protected from any unforeseen eventualities by spreading them across many different companies and sectors. As the saying goes – never put all your eggs in one basket!

Another attractive feature of mutual funds is their liquidity. Mutual funds are readily convertible to cash, whenever you may need it. Under existing laws, you can get your money within seven days of surrendering it but some companies can give you back your investments within the day!

And the best part is that most mutual funds require minimal investment. Some require as low as P5,000.00 to get you started, so even the average Juan dela Cruz can profit from this rapidly growing industry.

Now, it’s time to tackle some of the disadvantages of investing in mutual funds. Mutual funds may be a low or medium risk investment, but there’s always the possibility that you won’t get a positive return for your investment.

And because the fund manager is the one at the helm of control, you will not be involved in the decision-making process. All you can do is hope that your fund manager will make the best decision for you and the other shareholders of the company. There are also costs and fees involved when you decide to invest in mutual funds, and these can affect your projected returns, too.

You may also need to consider your timeline. Remember that mutual funds are best suited as medium to long term investment.

Taking all these factors into consideration, you can now have an idea whether investing in mutual funds is right for you. If you decide to give it a go, you now need to know the steps in buying a mutual fund.

Buying Mutual Funds

Now that the hard part is over and you have chosen the mutual fund company you are most interested in doing business with, you just need to fill up an application form provided by an authorized broker and you’re done! Depending on the company, you may also need to pay an entry fee.

Just remember, you need to take a proactive approach in monitoring your funds. After buying your shares, take time to learn more about mutual funds.

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