Investing your money is always a good idea, but the endeavor of putting your hard-earned money into something that may be risky can seem intimidating.
Out of all the investment options you may have, like stocks and starting your own business, there is also an option that a lot of people out there can attest to—mutual funds.
Whether you are a beginner who wants to get into the action or someone who does not know yet what a mutual fund is, this guide should help bring you up to speed on investing in mutual funds.
What is a Mutual Fund?
A mutual fund is a type of investment that lets you join other investors and corporations in a massive fund handled by a fund manager—a financial expert or professional who is trained and experienced in handling diversified stock portfolios, bonds, securities, money markets, and so on.
The fund manager’s job is simply to make sound investment decisions with other investors’ money and help that investment grow in order to benefit those investors.
Fund Managers manage your investment
Mutual funds can be an alternative for investors who aren’t able to afford individually-managed accounts.
Since mutual funds are managed mostly by a fund manager, it is a more hands-off approach—all you need to do is to regularly contribute to the mutual fund.
For most ordinary investors, they decide to join a mutual fund and put away a certain amount per month to invest, which can then potentially appreciate over time.
They should be aware of the risks and usually have a goal of investing for a certain amount of time, like 5 or 7 years.
Is investing in Mutual Funds risky?
As with any sort of investment, there is risk in mutual funds, but the good thing is that as long as it is a legitimate fund run by a competent fund manager and the economic situation is fairly stable, then there should not be too much to worry about.
In fact, other investment options like stocks are potentially riskier.
4 Types of Mutual Funds in the Philippines
1. Money Market Fund
Money market funds are short-term investments (1 year or less) that put in debt instruments, fixed income securities, special savings, and short-term bonds. These are best for those who want low risk while still being able to earn more than with savings and time deposit accounts.
2. Bond Fund
Bond funds are put in medium to long-term debt instruments, fixed income securities, and government and corporation bonds (1 year or more). These are for more risk-tolerant investors looking for higher returns.
3. Balanced Fund
Balanced funds are invested in equity securities and fixed income securities through a combination of debt instruments and stocks. These are definitely for those who are not adverse to stock market investment and how they are higher risk with potentially higher return.
4. Equity Fund
Finally, equity funds are purely invested in stocks, which makes it for the more aggressive risk-taker who knows fully well how the stock market works and how big potential profits can get through capital appreciation.
How to Invest in Mutual Funds?
Investing in a mutual fund for beginners is much like opening a bank account for the most part.
The usual procedure of bringing valid IDs, recent photos, and so on is to be expected, as well as the filling of forms with personal information and signatures.
Along with that is client assessment and account suitability to see if you are indeed ready for investing in a mutual fund.
You may also be asked to answer a questionnaire, depending on where you choose to invest. The result lets you know what kind of investor you are, thus letting you know which kind of mutual fund you should go for.
Whichever you do go for, you should then receive a document confirming your registration and the opening of your mutual fund account once all requirements have been submitted.
How long should you invest your money in mutual funds?
It is best to give mutual funds up to a 5-year window for potential returns, so it should be a part of your long-term portfolio.
Of course, it depends on what kind of mutual funds you put money in, but they all function relatively the same way. If you put it on something like a money market fund, give it a year to 3 years.
Online Brokers for Mutual Funds
You may choose to invest in a mutual fund online through platforms like COL Financial or First Metro Securities.
The good thing about them is that you can choose between a couple of dozen mutual funds offered by top mutual fund companies in the country with no front-end fees, so it is hassle-free investment with everything right at your fingertips.
It is important to take note that much like investing in stocks, returns in mutual funds are never guaranteed.
However, the good thing is that you can do your research and make a well-informed decision in regards to where your money should go.
Investing in mutual funds gives you both the assistance you need in growing your money while still being able to have full agency as to who you get that help from.
In a way, investing in mutual funds is the best of both worlds.