Financial Series: All About Mutual Funds
As part of the preparation for our
family’s future, we needed to educate ourselves financially. When we meant
financial education it is knowing the difference between residual and
non-residual incomes. It is about throwing the notion that mutual funds,
stocks, bonds, currencies etc are exclusive only for the rich. It is for
everybody. This is the reason why books from Robert Kiyosaki, John
Maxwell, Warren Buffet, Stephen Covey, Zig Ziglar and the likes are selling
like hotcakes. If you have seen the movie Pursuit of Happyness you will likely
be inspired to learn about stocks but for first timers like us, we can’t go
there yet because of the risk it entails. Let’s start on investments with lesser
risks and I’m talking about mutual funds.
Mutual funds are not new in the Philippines but only a few engage to it maybe because of the risks involved or plain lack of knowledge and understanding. Personally, I have just stumbled upon the idea through the internet and online forums. Did some research and took the first steps.
So what really is a mutual fund? My personal definition of
it is an amount of money pooled in by individuals or corporations which have
the same objective in mind thus the term “mutual”. Pooling is “chip in” or
contribute in laymen’s term. The objective is to invest the fund in businesses
to gain profits. But why do we have to pool in? Imagine this, a promising
“Company A” is expanding and needs 1,000,000 pesos as capital. Here is
“Investor A” which can invest only 10,000 pesos, then another “Investor B”
maybe 50,000 pesos. The 2 investors together with others (who also want to
invest in Company A) pool in their money to reach 1 million pesos. The fund
manager will then give the amount to Company A. Company A proceeds with the
expansion, grows, provides profits to the fund manager and the multiple
investors each have a cut. Well, at least, that’s the simpler and ideal
scenario. But what if Company A fails, then that will also be felt by the
investors.
Financial services companies are the ones offering these types of investments. Based on experience, you have to contact an agent/financial adviser or contractor affiliated with the company and he will be the one to assist you in your investments. Fund managers are in charge of where to invest the fund. You should know whether the financial service provider is aggressive enough to put funds in pioneering or promising corporations/businesses or playing safe by investing in blue chip companies. You will know by reviewing their prospectus. Prospectuses are available per fund to give the potential investor an overview of where his money will be invested.
Always keep in mind that mutual funds are investments. It is not a savings account (guaranteed < 1% interest per annum), nor a time deposit (1-2% interest per annum). Returns are not guaranteed, money is not insured by the PDIC, risks are involved but potential income is much higher. As an example, the year-to-date performance as of the 2nd qtr of 2012 of equity funds range from 13.80% to 21.48%. Imagine having an income on that percentage, cool right?
Share you ideas on the comments below. : )
Mutual funds are not new in the Philippines but only a few engage to it maybe because of the risks involved or plain lack of knowledge and understanding. Personally, I have just stumbled upon the idea through the internet and online forums. Did some research and took the first steps.
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| Photo courtesy of Sun Life Financial |
Financial services companies are the ones offering these types of investments. Based on experience, you have to contact an agent/financial adviser or contractor affiliated with the company and he will be the one to assist you in your investments. Fund managers are in charge of where to invest the fund. You should know whether the financial service provider is aggressive enough to put funds in pioneering or promising corporations/businesses or playing safe by investing in blue chip companies. You will know by reviewing their prospectus. Prospectuses are available per fund to give the potential investor an overview of where his money will be invested.
Always keep in mind that mutual funds are investments. It is not a savings account (guaranteed < 1% interest per annum), nor a time deposit (1-2% interest per annum). Returns are not guaranteed, money is not insured by the PDIC, risks are involved but potential income is much higher. As an example, the year-to-date performance as of the 2nd qtr of 2012 of equity funds range from 13.80% to 21.48%. Imagine having an income on that percentage, cool right?
Share you ideas on the comments below. : )
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