Monday, March 17, 2014

5 Things to Know About Mutual Funds in the Philippines


My interest about financial literacy started last year. I dedicated my spare time reading books (one of my favorite book is Pera Mo Palaguin Mo 1 and 2 by Francisco Colayco), watching informative videos (Dave Ramsey Baby Steps, Robery Kyosaki, Pesos and Sense, Pisobilities, etc.) and following blogs/forums about investing.  #aralmunabagoinvest

This year, we opened an account at FAMI (First Metro Asset Management Inc) to invest in mutual fund.

According to Investopedia, Mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.

Mutual funds make saving and investing simple, accessible, and affordable. We are doing Peso Cost Averaging and whenever we want to top-up our SALEF we just simply log-on to Metrobank Direct.

Below I listed down 5 things we need to know about mutual funds.

1. Understand different funds, different features
In the Philippines, there are currently four types of Mutual Funds.
  • Equity Fund - Invest primarily in shares of stock issued by Philippine corporations
  • Balance Fund - Invest in both shares of stocks and bonds
  • Bond Fund - Invest in a portfolio of fixed income securities
  • Money Market Fund - Low risk conservative type of bonds primarily invested in fixed income funds and securities with short term investment period

2. You have at least Php 5,000 to invest
Buying mutual fund is easy and the minimum investment is affordable. For only P 5,000 pesos you can invest in mutual fund and additional minimum investment is 1,000.

3. Fees, loads and expenses
Mutual funds charges fees, sales load, investment management fee and exit fee. Different Mutual fund companies have different amount of fees better to examine first the fees and expenses of each mutual fund. Usually, the exit fees go away the longer you stay invested. So if you are in for the long term, you will likely not be charged the exit fees.

Are the gains from mutual fund investing subject to tax?
According to National Internal Revenue Code of 1997, capital gains realized from mutual fund investing are not subject to tax. This adds to the attractiveness of investing in a mutual fund.

For SALEF of FAMI, see below;

Investment Amount Sales Load Fee
P5,000 to less than P100,000 2.0%
P100,000 to less than P500,000 1.5%
P500,00 to less than P2,000,000 1.0%
P2,000,000 and above 0.5%

Exit Fee Rate
First 6 months 1.00%
180 days and beyond none
Management Fee
Annual Fee 1.875%

4. Diversification and liquidity
By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is being spread out. You can invest a few thousand pesos in one fund and obtain instant access to a diversified portfolio. This diversification allows investors to reduce the risk.

Liquidity is the term used to describe ability to use cash over short term. Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time.

5. Safety and potential higher returns
Mutual funds are highly regulated by the Securities and Exchange Commission under the Investment Company Act and its implementing rules. You can keep your money invested for al least more than 3 years. Mutual funds are a good investment option for long-term growth. Average annual returns for mutual funds are between 9-20% and are higher than bank savings account interest.

NAVPS Performance (as of 3/19/2014)
Fund Name NAV Per Share 1 yr. Return (%) 3 yr. Return (%) 5 yr. Return (%) YTD Return (%)
Stock Funds
Primarily invested in Peso securities
First Metro Save and Learn Equity Fund,Inc.* 5.0862  -3.55%  14.96%  28.32%  7.18% 
Philam Strategic Growth Fund, Inc.* 502.83  -10.05%  12.17%  24.69%  9.49% 
Philequity Fund, Inc.* 31.6838  -1.66%  18.23%  31.7%  9.63% 
Sun Life Prosperity Philippine Equity Fund, Inc.* 3.7251  -5.97%  14.27%  23.97%  7.31% 
United Fund, Inc.* 3.0682  -12.93%  4.06%  9.92%  5.96% 

* - NAVPS as of the previous banking day   ** - NAVPS as of two banking days ago
*** - Listed in the PSE.   (1)-YTD return generated from Inception Date of February 7, 2014..

Source: PIFA

Mutual funds are ideal investment instrument for growing money over time. It can be used as a savings medium for retirement, education for your child, or building up a long-term cash fund for some specific future financial objective.

So if you want to invest a small amount, be diversified, and have someone who will do the thinking and monitoring of your investments invest in mutual funds. As an OFW, while I don't have time/skills to managed my portfolio I choose mutual funds.

Below is a very short and informative video about Mutual Funds from Pesos and Sense.

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