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The Ultimate Beginner’s Guide on Index Funds in the Philippines

index-funds-philippinesToday I’ll talk more about index funds in the Philippines.

 

DISCLAIMER – Make sure you read and understand the entirety of the post before deciding. What you do with your money is completely your own. I am not a financial advisor.

 

This is actually not the first time I’ve talked about index funds. I mentioned it as part of the best investment for retirement in the Philippines.

 

And I am still into index funds that I don’t invest individual stocks anymore.

 

Surprise!

 

Here’s what happened

 

My investing journey began in 2017. I opened my first brokerage account with First Metro Sec and bought my first Php 5000 with Puregold (PGD) shares. After six months, I made an update of my experience with the stock market as well as the lessons I learned along the way.

 

I am not a trader. I use value investing approach where I cherry pick stocks that I know will be valuable in the next 20 to 50 years (as that’s how long I want to stay invested). I spent hours reading other blogs, following the advice of my broker and studying how stocks work.

 

But the stock market went downhill in 2018. And I got stressed seeing the results month after month after month. The moment I realized I am getting obsessed with the numbers on my portfolio, I took a step away from my computer and really ponder upon what is more important for me.

 

And so I started to become lazy.

 

In December last year, I sold all of my individual stocks to invest in an index fund. As much as I want to get rich and make money, it suddenly became less of a priority. All I want is to ride the market as early as I could. I don’t want to compete with it nor beat it.

 

Investing is not supposed to be stressful. It should not take away the joy of having money saved for my future self.

 

 




 

 

 

Again from Philip Taylor of PTMoney,

 

"Time in the market is better than timing the market. Just start saving/investing now. Automate it. Pay yourself first. Your future self will thank you for it.”

 

What does this mean for you and me?

 

If you invested your money 10 years ago, you have already won. There’s no need to be greedy at all. Whatever happens to the market in the next 6 months to 1 year is not your battle anymore. Focus on the long-term possibility instead.

 

Over the years these three things remain the wisest advice I’ve ever read when it comes to the stock market.

 

Invest now, Invest regularly and Invest for the long-term.

 

No, I am not shutting my doors completely when it comes to individual stocks. Maybe, just maybe when I have money to play I will buy. But for now, this is my investment strategy – just be lazy and do passive investing with index funds.

 

 

What are Index Funds?

 

To better define what an Index Fund is, I need to first share to you what the word index means. Basically, an index is an indicator or measure of something.

 

In the Philippines the Philippine Stock Exchange Index or PSEi is the most famous one. PSEi is composed of the 30 “biggest” publicly listed companies in the Philippines based on PSE’s standard.

 

The movement of PSEi is closely monitored by investors, fund managers, economists and everyone who are into investing in stocks because it indicates how good the Philippine economy is.

 

If PSEi is up then it is a good indicator that the general economy of the country is doing well. Thus, it is the best time to invest.

 

With that, we can simply define an index fund as a portfolio with stocks and securities constructed to match or track or even represent a specific market index.

 

 

 

 




 

 

How Index Fund works?

 

Index Funds work like mutual fund. When you start investing in one, your money will be pooled together with the other investors and invested on a common market.

 

The Philippine Stock Exchange Index a.k.a. the Top 30 companies in the country is the number one market that index fund in the Philippines mimics.

 

Last quarter of 2017, FAMI launched a Consumer Index Fund. The First Metro Index is composed of 18 stocks under food and beverage manufacturing, fast food and restaurants, mall development, communications, financial services, tourism, transportation and more.

 

So in a nutshell, an index fund is a list of stocks put together for a definite outcome – either to match or track or even represent a specific market index.

 

 

Advantages of Index Funds

 

There are a number of advantages when it comes to investing in an index fund. Here are the top two:

 

Diversification

 

Just like mutual fund and ETF, Index Funds are invested in a market that already have multiple stocks.

 

 

Direct investing in the stock market can be a bloody and stressful journey. You have to spend time researching which stocks to buy and when to buy them.

 

In Index Fund all you have to do is simply invest. It streamlines the time (and emotion) spent making decision to where your money should go.

 

Consistency

 

Investing in index fund has a clear goal in mind – mirror the market!

 

What does this mean for you and your retirement fund?

 

As long as your chosen market is green, your index fund is green too.

 

Something I realized now that I’m investing in direct stock market is that I have a tendency to be emotionally attached.

 

As the market move up and down, I am easily consumed by fear and greed. This feeling force me to make sudden financial decisions here and there.

 

With Index Fund, there is a lesser chance that you get affected by your emotion. Index Fund has a simple job – track the market!

 

 

Disadvantages of Index Funds

 

As to any investment, risk play a big factor. When you invest in index fund you are exposing yourself to events that can affect the entire market and may decline its value.

 

It is also good to note that index funds are created only to mirror the market. Thus, if your goal is to beat the market then this is not the fund for you. Also as it is purely passive you don’t have any say on the fund, you just basically ride it and wait for it to grow.

 

 

 

 




 

 

Top Performing Index Funds in the Philippines

 

There are two types of asset classes where you can  index funds are available. Unit Investment Trust Funds (UITFs) managed by banks and Mutual Funds (MFs) managed by a trusted company. There is also the first exchange-traded fund in the Philippines, First Metro Exchange-Traded Fund which is an index fund that is being traded like typical stock in the market.

 

Learn more about the top performing index funds in the Philippines including fees and minimum investment. Note that the list is in no particular order.

 

SB Philippine Equity Index Fund

Managed by Security Bank

Ojective of the Fund aimed at investors with aggressive risk appetite & those seeking returns that mirror the Philippine Stock Exchange Index (PSEi).

Minimum Initial Investment – Php 10,000

More information here – https://www.securitybank.com/personal/investments/unit-investment-trust-funds/sb-philippine-equity-index-fund/

 

BPI Philippine Equity Index Fund

Managed by Bank of the Philippine Islands (BPI)

Objective of the Fund is to track the performance of the Philippine Stock Exchange index (PSEi) by investing in equities comprising the PSEi in the same weights as the index.

Minimum Initial Investment – Php 10,000

More information here https://www.bpiassetmanagement.com/pages/bpi-philippine-equity-index-fund

 

BDO Equity Index Fund

Managed by BDO

Objective of the Fund is to  provide investors with a total return which reflects the return of the Philippine Stock Exchange Composite Index (PSEi) by investing in a diversified portfolio of stocks that so far as practicable consists of the component companies of the PSEi.

Minimum Initial Investment – Php 10,000

More information here https://www.bdo.com.ph/personal/trust-and-investments/peso-denominated-uitfs/bdo-equity-index-fund

 

Landbank Equity Index Fund

Managed by Landbank

Objective of the Fund is for investors who are willing to take extra risks in order to avail of the potential higher investment returns offered by the equities market, minus the hassles of monitoring and analysing each stock.

Minimum Initial Investment – Php 5000

More information here https://www.landbank.com/equityindex-fund

 

ATRAM Philippine Equity Smart Index Fund

Managed by ATR Asset Management

Objective of the Fund is to Invest  in equity securities included in the Philippine Stock Exchange Index.

Minimum Initial Investment – Php 50

More information here https://www.atram.com.ph/_ATRAM/UITFDetails.aspx?id=ATRPESIF

 

 

Philequity PSE Index Fund

Managed by Philequity Management, Inc.

Objective of the Fund is to  mirror the performance of the Philippine Stock Exchange Index (PSEi).

Minimum Initial Investment – Php 1000

More information here https://www.philequity.net/ppse.php?mode=Snapshot

 

PAMI Equity Index Fund

Managed by Philam Asset

Objective of the Fund is for moderate and aggressive mutual fund investors who want to invest in Philippine stock market with minimal initial budget.

Minimum Initial Investment – Php 1000

More information here https://www.philamfunds.com/en/our-products/equity/pami-equity-index-fund.html

 

Sun Life Prosperity Stock Index Fund

Managed by Sun Life

Objective of the Fund is to be long-term investment outlet that allows you to diversify your money in a mix of domestic stocks. The Fund aims to mirror the performance of the Philippine Stock Exchange Index (PSEi).

Minimum Initial Investment – Php  1000

More information here https://www.sunlife.com.ph/PH/Investments/The+Aggressive+Investor/Philippine+Stock+Index+Fund?vgnLocale=en_CA

 

First Metro Consumer Fund

Managed by First Metro Asset Management Inc.

Objective of the Fund is to see long term return by outperforming several economic benchmarks which may include the main market index of the Philippine equities market, PSEi.

Minimum Initial Investment – Php 5000

More information here https://fami.com.ph/mutual-fund/first-metro-consumer-fund/

 

First Metro Exchange Traded Fund (ETF)

Managed by First Metro Asset Management Inc.

Obective of the Fund is to track the PSEi from its asset allocation to weights.

Minimum Initial Investment – depends on the board lot. Currently, you can buy a minimum of 10 shares per order.

More information here https://firstmetroetf.com.ph/

 

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How to Invest in Index Funds for Beginners

 

Index Funds are sold by top asset management firms in the country. Opening an account is the same as opening a mutual fund.

 

Depending on the financial company you will entrust your investments with, you will may need to do/to present the following:

 

Step 1. Visit the website of your chosen account provider.

 

Step 2. On their website you can easily find the page for Index Fund and/or Investment Products.

 

Step 3. Read the differences of each Index Fund offerings. Select your fund based on your personal investment objectives, investment horizon and your risk profile. READ: Reader Question | Where Should I Invest My Money?

 

Step 4. Download the needed forms. This will depend on your chosen asset management company.

 

  • Prospectus which is required and filed with the Securities and Exchange Commission. This document provides details about an investment offering as well as facts that an investor need to make an investment decision.

  • Account Opening Form which is required to be filled up for your information and other personal reference.

  • Investment Risk Profiling Questionnaire which will know your investment risk profiles and match you with the right companies to invest with.

 

Step 5. Prepare your IDs.

 

Step 6. Have you initial investment ready. Initial investment for an Index Fund account ranges from Php 5,000 to Php 10,000. Additional investment is minimum of Php 1,000.

 

Step 7. Submit all your requirements. You may need to go to the nearest office or send through mail. Sun Life for example introduces an online facility that allows you to add, transfer and redeem shares anytime, anywhere. On FAMI, I opened my account by submitting all the forms and requirements via courier.

 

Step 8. Wait for your proof of purchase and/or statement of account to arrive.

 

Step 9. Fund your account.

 

 

How I Do Passive Investing with Index Funds

 

Currently, I invest in two index funds – First Metro Consumer Fund and First Metro Exchange-Traded Fund (ETF).

 

Equity Fund – 39%

Index Fund – 24%

Exchange Traded Fund – 37%

 

I think the main reason why I am holding on to my actively managed fund is really because it is my first investment vehicle. That fund is really close to my heart. I also bought some pretty good amount of shares cheaply since I started in 2014 so it is a waste to sell it now.

 

What’s my plan now?

 

Honestly, I just want to continue being invested in the market. I really see index funds and mutual funds as the best investment vehicle for me based on my risk appetite, my age, my financial goals and my overall knowledge in investing.

 

 

5 Tips When It Comes To Investing in Index Funds

 

Index Funds are here to stay.

 

Warren Buffet even mentioned that by periodically investing in index fund, the know-nothing investors can actually outperform most investment professionals.

 

Here are my share of tips as you decide to invest in index funds.

 

1. Really understand the investment vehicle

 

I encourage you to read a lot especially if you are a newbie investor. Always try to weigh in the pros and cons. Really know who you are and your end goal for the investment vehicle you are about to open. As always, financial literacy is the secret key to growing your money.

 

2. Choose a broad-based market

 

If you are going to invest in an index fund, it is better to choose one that has exposure to more stocks and securities that your money could ever afford. Also make sure that it contains high-quality stocks that are familiar to you.

 

3. Invest only what you are okay to lose

 

Risk is evident in every investment vehicle same as with index funds. I would highly suggest to save enough buffer fund first before making a decision to invest.

 

4. Do the Peso-Cost Averaging

 

Another good thing about index fund is you can easily invest through peso-cost averaging method. Peso-Cost Averaging or PCA is short is an investing method wherein you will invest a fixed amount of money at a regular duration over a long period of time. It is actually one common way of investment that is proven to give higher return of investment. Set aside 5,000pesos a month for your investment and never miss a month for this one. Do it for the next couple of years in investing.

 

5. Investing in Index Funds is NOT a get-rich-quick scheme

 

When I first shared that I’m finally investing in stock market, I received numerous personal messages from colleagues asking how it works, how they can get started and how much they can gain.

 

Most thought that investing in Philippine stock market is a get-rich-stock-quick scheme. It is absolutely NOT. Although there are investors who might get rich quicker than normal, it will generally take several months or even years to see significant returns.

 

Don’t expect to get rich overnight in the stock market.

 

 

Final Notes from SavingsPinay

 

I think for an investor who want to maximize the limited money they have, index fund is a good choice.

 

There will always be a debate whether index funds or individuals stocks are the best way to go about investing. Index Funds has its pros and cons. The fact that your Php 5000 could buy a number of shares already from the most expensive companies that represent the Philippine economy is a huge advantage.

 

But, if you want to make more money and you are okay to take risks for possibility of high returns, investing in individual stocks could be more appealing for you.

 

I think at the end of the day what matters most is that you invest now. I cannot stress enough on the importance of making your money work for you.

 

That’s it for this post. Hope it helps you learn more about index funds in the Philippines.

Clariza Glino

Izza of SavingsPinay helps Filipinos bridge the financial literacy gap one content at a time by providing insights and tips on budgeting, saving, investing, side hustle and growing your net worth. Aside from this blog she also writes at www.izzaglinofull.com, a beauty and lifestyle blog for frugal Pinays and manages, www.izzagevents.com, a wedding and event business since 2011. For inquiries, topic suggestions or future collaborations email her at izza@savingspinay.ph

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