SAVINGSPINAY SERIES | Day 2: Gabay sa Tamang Pagpili ng Mutual Fund

Growth Funds

• • Invests in stocks that are expected to appreciate over time. 
  • Invests on companies that have potential to grow consistently. 
  • Invests on firms with consistent growth in sales and earnings.

Income Funds

• 
  • Buy stocks that show consistent dividend growth and high dividend yields. 
  • Targets real estates and utilities (Meralco, Manila Water etc.)
  • Mixture of  bonds and stocks

  

       Value Funds

• • Invests on stocks that are trading below the value of the company’s assets.
  • Looks after industry group that has fallen out of favor with investors.

Cyclical and Sector Funds

Bond mutual funds offer diversification and spreads the risk by investing over a large number of other bonds. 

Here are the type of bonds funds you can invest with:

• • Matures in a few years or less.
  • Yields better than money market bond account or bank certificate.
  • Perfect for people who are investing today in preparation of a big purchase in the future

Mid-Term Bond Funds

• • Has 5-10 years maturity
  • Offers great chance for higher returns than Mid-Term Bond Fund

Long Term Bond Funds

• • Matures past the 10-year mark.
  • Most volatile of all the bond fund types
  • Highly exposed on interest rate fluctuations.

Money Market Funds are investment vehicles that invests in extremely short-term cash or cash equivalent instruments. They offer higher interest rate than regular bank accounts and is known as a safe place to park your money if and then you have something to purchase in the future. Money Market Funds have check-writing feature and other services to make it as a convenient investment vehicle. 

Money Market Funds Are Divided into Two; Taxable Money Market and Tax-Free Money Market.

• • Invests in short-term corporate securities, bank certificates and other givernment-backed securities.
  • Considered as relatively safe investments

          Suitable for short-term investments. 

• Non-Taxable Money Market

• • Invests in treasury and have full faith on government-backed securities.
  • Excepted from income tax.

READ:  On Investments Gone Wrong

These funds are considered specialized because they follow a specific investment objective. These are industry-preferred bonds that follow a strict goal and investment strategy implemented for years. 

Some examples for Specialized Funds are the following:

• Real Estate Investment Trusts

• • Invests in income-producing real estate like hospitals, shopping center, apartments etc.
  • Fund Manager find properties worth investing. 

               Depends on the growth of the target industry

• International Funds

• • Gives you the opportunity to participate in the growth of foreign economies.

               Carry some particular risks 

READ: Learn to Invest Without Tears Before 2014 Ends

With the different types of mutual fund you just read, you might have some information overload. Don’t worry, there is a selection process you can follow to select the best mutual fund that can match your financial goals. 

     Whether you are investing in a mutual fund or any other investment vehicle, you need to have an investment goal. Investment goals are your very own desires for the money you are investing. What will you do with the money you invested? Are you investing today for your retirement? or Are you investing today for a near-future expense like a house, a car or college education? Your goal as an investor will enable you to narrow down the mutual fund you will invest with. 

     Again on Day 1 I’ve shared briefly the need to assess first what type of investor your are. Are you Conservative meaning have low risk tolerance? Are you Moderate meaning can take medium risk tolerance or are you Aggressive who have high risk tolerance? Identifying your risk tolerance as an investor is as important as identifying your goals. You just need to examine whether you are a risk-taker or not. 

MUST READ: Understanding Managed Funds as an Investment Vehicle in the Philippines

How long can you afford to let your money grow in a mutual fund? Remember that the longer your investment time horizon is the better the result of your investment will be. I suggest a time horizon of at five or more years. This is why the best time to invest is NOW.

We all have different styles as an investor. I, for example, are more into long-term capital appreciation fund. Since I am still at my early 20’s I can generally fathom my money to be invested over the next 10-20 years. 

If ever your needed the return in the near future then you might consider an income fund or a money market fund. Yes, the return may not be that high compared to those who invested long-term but still higher result than parking your money in a savings account. 

Balanced Fund on the other hand satisfy investors who are into long-term appreciation but unwilling to take risks. It invests on stocks and bonds. 

If you invest in mutual fund you are entrusting your money to a professional asset management firm. These firms has charging fees to the investor and you can read about them in the prospectus. Understand the different types of fees that you can be charged when purchasing an account. Research more about the sales fee or how much they charge if ever you withdraw your money. FAMI, for example will charge you if you an amount of your investment in the first six months. This is to cover any administrative charges associated with the investment and/or discourage you from withdrawing your money that early. 

I encourage you to research a lot if you are investing for the first time. Research on the experience of other investors and research more so on the past results. 

Think about the following:

1. Is this fund consistent in making market returns?
2. Did the returns vary dramatically throughout the year?
3. How did the fund manager perform under certain conditions?

MUST READ: How to Worry-Free Invest in the Philippines
 

Each Mutual Fund’s Fund Fact Sheet matter. You can easily see how they diversify each investment, what their objective for the fund is and more. These fund fact sheets are most often than not updated on a monthly basis giving you a precise information about the fund’s performance.

Selecting a mutual fund nowadays is such a daunting task, but there are processes that can make the activity easier. Just think about your objective and your risk tolerance. Also, be sure to ponder about the fund performance and seek help from others who have tried investing as well. 

Top 10 Best Performing Mutual Fund in the Philippines from MutualFundPhilippines.com

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