What you need to know before Investing in Mutual Funds

It’s never wrong to prepare for your future.

One way to be ready for it is to invest in financial instruments such as mutual funds.

You don’t immediately jump into investing into mutual funds, though. There are things you have to be aware of, such as:

  • Educating yourself You wouldn’t enter into something that you haven’t understood, would you? Hence, the first step is to educate yourself. After all, this is your hard-earned money we’re talking about here. You’d want this hard-earned money to grow.
  • Understanding the fees – Aside from the initial amount required for the investment, you also have to be aware of other fees involved, such as sales loads, breakpoints, etc.
  • Figuring out what your goal is – What are you after? Your investment will all depend on your risk tolerance – are you after preservation of capital? Are you after fund growth? An investor can be conservative, speculative, or in the middle.
  • Considering how much you can invest – You have to understand how much money you are able to invest without hurting your budget. You should be ready to part from it like it is your ‘shopping money’. You must be aware that the money you invest should be treated that.

Visit PIFA or the Philippine Investment Funds Association to see the list of Mutual Funds in the Philippines.

Types of Mutual Funds

There are different types of mutual fund accounts and they vary according to your risk tolerance and the investment duration.

Get to know some of the offered mutual funds today:

1. Money Market Fund – This is what’s best for conservative investors, those who wish to take as less risk as possible. This is a short-term mutual fund – funds are only kept for a couple of months – and investors going for this is mostly concerned about preservation of capital.


2. Bond Fund – This is a fund that’s mostly invested on bonds. This comes with moderate risks, and is suitable for long-term investors.


3. Equity Fund – This is ideal for speculative investors, as this focuses on stock investments. It’s the fund manager that mostly chooses where the funds will be invested on. Go for this if you’re a speculative investor i.e. willing to take a huge amount of risk.


4. Balanced Fund – The funds are invested in a healthy balance of bond and equity funds. With this, you get both income and growth. This is also ideal for those long term investors who are willing to take a particular amount of risk.


Are you looking for a short-term investment?

  • A money market fund may be the best for you.

Looking for income but still want your money to earn?

  • Go for a fund with government securities.

Willing to subject yourself into a high amount of risk?

  • Go for a stock index fund.


Make sure to choose a fund that meets your needs. Go for that fund that satisfies your risk tolerance levels but is still at that ‘safety level’.

Not choosing one that fits your personality will turn the fund into waste of money, time and energy.




Sales Charges

Mutual funds here in the Philippines (and even in other countries) are always associated with sales charges. The fees, also known as sales loads, range from 2 to 5%.

There are two forms of sales load:

  1. Front End – You’re charged this fee as you open the account. This also depends on the amount of your investment. The sales load rate gets lower as your investment amount gets higher.
  2. Back End – You’re not charged of any amount upon entry; you’re only charged once you withdraw or redeem your funds calculated based on the length of the investment.


Type of Account

Are you opening an individual, joint or account?

Similar to bank accounts, you also have the option to have a co-investor should you choose to go for joint accounts. Trust accounts are also available if you’re planning to open the mutual fund account for your children who are below 18 years old.


Mutual Funds vs UITF

Beginning investors often get confused with mutual funds and UITF. It’s not surprising as the two can get really similar. Here’s a quick guide to not confuse you:


  • Both are merged investments.
  • The types of UITFs and mutual funds (bond, balanced, money market, equity) are often the same.
  • Both are handled by professional fund managers.


  • With mutual funds, you buy shares; with UITF, you buy units.
  • Hence, you calculate for the NAVPS for mutual funds, and you calculate for the NAVPU for UITF.
  • Banks such as BPI, BDO and Metrobank offer UITF; companies such as Philequity, Sun Life, and Soldivo offer mutual funds.
  • UITFs and mutual funds’ fees may be different from one another.


Making that Choice

If you have the money, invest either in Mutual Fund or UITF. You can also invest in both platforms.

The good thing about a mutual fund is that the investor, being a shareholder, has the benefit of voting rights because it’s a corporation.

If you don’t have the money yet, then save up to have your initial investment on hand. Pretty sure you can save up for other ‘necessities’ that are definitely less important compared to your future that will benefit once you’ve invested in mutual funds, so why not save for this too?

Sure, it’s a risk you’re about to take, but as long as you’re prepared, then you’re bound for profits and returns that you’ll benefit from in the long run.

You work hard to earn money. It’s time for your money to work hard for you.

Leave a Comment

Your email address will not be published. Required fields are marked *