A mutual fund is, in essence, a pool of money from several investors that is managed by a professional money manager or “Fund Manager” for a fee.  Granted, that’s a simplistic description for a complex type of security but from an investor’s perspective, it’s a pretty accurate definition. By investing in mutual funds, you can put expert money managers to work to help you achieve your financial goals, whether you’re saving for retirement, planning for your children’s education or saving for any special need. Before investing, you’ll want to understand the basics of mutual funds. This article is designed to help you meet this purpose. Simply put, a mutual fund is a company that makes investments on behalf of its shareholders. The fund pools your money with money from many other people who have similar investment objectives. Professional money managers then take the pool of money and invest it in securities, such as stocks, bonds and money market instruments. Mutual funds can make money for you in two ways. One, they can pay dividends earned from the funds’ investments. And two, if a security held by a fund is sold at an income; the fund can pay capital gains. As a shareholder, you own a proportionate share of the fund. Each share represents ownership in all the fund’s underlying securities. Funds pay dividends and capital gains in proportion to the number of fund shares owned. Thus, if you invest Php1, 000 you’ll get the same rate of return as if you invest Php10, 000. Mutual funds provide an assortment of investment options. They offer growth, income, or both, and the opportunity to invest in international markets, as well as the U.S. A fund’s portfolio manager typically invests in as many as 50 to 200 or more different securities. In effect, they put your money in many baskets instead of just one. Only the most well heeled investors can arrive at the diversification on their own that mutual funds can for their shareholders. We came up with this mutual fund guide to help you choose the best choice and let you understand what really a mutual fund is.
Here are some guides for you to understand:

Choose Your Fund Strategy

There are a myriad of strategies, but we wanted to at least touch on the major ones in this introduction; Growth Investing, Value Investing, Income Investing, International Investing, Hedge Fund Investing, or a combination.  In addition to these strategies you will often see something in the title of a mutual fund that further defines the area they invest in such as “Small Cap Growth”. Remember that most successful fund investor’s use a combination of fund types rather than just one because, like we remind you in every guide, diversity is your friend.

Exchange Traded Fund or Traditional Fund

Next you will need to decide between a Traditional Fund or an Exchange Traded Fund or ETF.  A traditional fund doesn’t allow investors to buy and sell quite the same way as you would buy a stock.  All traditional mutual fund orders are processed at 4PM EST; you can’t trade these types of funds more than once during a single day.  The other option is the Exchange Traded Fund (ETF) which trades exactly like a stock; you can buy and sell them whenever you want throughout the day.  Choosing really depends on your personal preferences.

Check the Expenses and Fees Before You Buy

The next subject is important, Mutual Fund Expenses and Fees.  There are several types of fees that you need to be aware of and they are Loads, Redemption Fees, Transaction Fees, and 12b-1 Fees.  Whoa, that seems like a lot to remember, right?  Well here’s a simple fact that will help you remember which fees to pay and which to try to avoid.  Every fee is optional!  That’s right, the funds decide what fees they’re going to try to get away with charging, and so can you guess which ones you should pay? None, you don’t have to pay anything.

Check Fund Manager Tenure

The last thing to check is Fund Manager Tenure, which is how long the fund manager has been managing the fund.  For example, if you were about to buy a fund that performed amazingly over the last 10 years but then found out they just replaced the fund manager 3 weeks ago, shouldn’t that change your mind?  If, on the other hand, a fund manager has outperformed his competitors and the index over periods as long as 20, 15 or even 10 years, we’re impressed.  That’s a very long window of time and we feel it proves the value of his expertise.
Well there you have the mutual fund guide. We sure hope you get the best choice in where you put your money.

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