About half of the population of America invests in mutual funds. In the Philippines, mutual funds are gaining popularity as it is in a sense an investment vehicle for beginners. But while many recognizes the value of having investments, many are still unaware of how to start investing in mutual funds and which fund to invest on.
Here are the basic information one should know about mutual funds.
Mutual Funds
A Mutual Fund (MF) is a type of Investment Company that
pools money from different investors and invests the money in various
securities depending on the objective of the fund. In this way, MF enables
investors to invest money as small as Php 5000. Each investor is issued shares
that represent a portion of the holdings of the fund.
Types of MF
There are four basic types of MF available in the
Philippines. These types are categorized according to its investment objectives
(or the securities the fund is invested in).
- Equity Funds are invested primarily in shares of stocks.
- Bond Funds are invested in long-term debt instruments of governments or corporations.
- Balanced Funds are invested in both shares of stocks and debt instruments.
- Money Market Funds are invested in short-term debt instruments.
Which MF do I choose?
The key to knowing which MF to invest on lies in knowing who you are as an investor. Who you are as an investor depends largely on your investment objective and risk tolerance.
See the table I made below:
High risk tolerance means an investor can accept steep fluctuations in the value of the investment. In a nutshell, the investor does not panic when his/her investment loses half of its value in one day. Such investor bets that investment may take an upswing twice or thrice the value in the long-term.
Low tolerance to risk is exactly the opposite who freaks out and wants to call the investment off when PSEi plunges 7% in one day.
Short-term investment horizon is within 2 years, while
long-term is at least 5 years of investment.
Where to Invest?
For a list of Mutual Funds and their performance, visit http://www.pifa.com.ph/factsfignavps.asp.
For answers to questions such as What is NAVPS?, How do I earn?, read my blog: MutualFunds: Know How Your Money Earns
To know the advantages and disadvantages of investing in
Mutual Funds, read my upcoming blog: Why
Invest in Mutual Funds?
Very clear post about Indian mutual funds basics. I enjoyed reading the post!
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