Tuesday, February 26, 2013

Mutual Funds : What I know that you might need to know

Mutual funds are my newest source of happiness! I wanted to share the happiness to everyone so this explains this post. Allow me to relate my short but long written journey about Mutual Funds.

This is NOT a sponsored post by the way.

I started investing in Mutual Funds last year and as of date, I’m amazed on the achievement of my little and hard worked money. I’d like to share this chance to earn to my local blog friends. As much as I want to speak for my foreign blog friends, I’m not sure with the differences in the governing laws across countries. However, I’m sure that every country, especially in the US, offer more and mutual fund investment opportunities. Nevertheless, I hope this post will give you an idea of how this promising investment opportunity works.

What are Mutual Funds in the first place?

I admit that I’m not a financial expert. I’m an ordinary investor. So my definition and understanding of Mutual Funds is good as what I absorbed from my constant internet research and the lectures of my Financial Advisor.

The easiest way to define Mutual Funds, go to Wikipedia. LOL Seriously, in my level of understanding, this is how I define Mutual Funds.

Using the word “mutual,” these are joint funds between an investor and the investment company. Since these are joint funds, both parties become beneficiaries of the funds’ earnings.

So how does the earning system works? The investment company offers mutual fund opportunities to investors. The interested investor enrolls his money as mutual fund investment. In return, the company treats the investment as an asset to manage and improve. The company may invest in the stock market and other means of earning. The system may look easy but in reality, the execution entails more processes and decision making. What complicates the situation is the way the company manages its investment. A wise and secured investment company doesn’t simply purchase stocks to another company. They have a pool of Financial and Risk Managers. They rigorously monitor the economy’s outlook and analyze to which companies they will purchase stocks.  As my Financial Advisor mentioned, the role of these managers is to maximize our earnings and reduce the risks of loses.

At this point, I would like to believe that you see Mutual Funds as a deep water well that emits earnings from every piece of money thrown to it. If the economy is at its good times, this will work to everyone’s favor. However, we all know that every economy contains a cycle of peaks and troughs. In times of trough, both the investor and the investment company will suffer. There could be zero earnings for both parties. But before that happens, we should remember that every secured and established investment company has Risk Managers. The job of the managers is to anticipate and lessen the degree of loses. Investment companies wouldn’t want to experience loses as well. Your investment’s loss is the company’s loss. You and the company share the same dream and interest. You see, that’s why it’s called mutual funds.

Since I’ve been mentioning risks and loses, it’s important for every Filipino investor to remember that mutual fund investors are not protected by the Philippine Deposit Insurance Corporation (PDIC). Unfortunately, this is the risk that every investor should pray for. When the investment company declares bankruptcy, the chance of retrieving your invested money is quite impossible. Some of you might be disheartened by this fact. But as I have said, every investment entails a level of risk. In order to avoid this misfortune, choose a reputable, trusted and stable investment company.

Now that I have laid down the definition of mutual funds, let me discuss the requirements and amount you need to raise.

As of date, I have only invested in one company, Sun Life Asset Management Corporation (SLAMC). So the succeeding information I will be relaying will be good for this company. Although after some internet research and inquiries, I could say that there are relatively few differences in the requirements and application system among other companies.

For the application requirements, you need to prepare valid government IDs, a 1×1 picture, money for the initial investment and an agent or a Financial Advisor. You cannot directly apply for investment in the company. More often than not, the company will refer you to their Financial Advisors. In my case, my Financial Advisor was a former employee of Sun Life Philippines.

The Financial Advisor’s job is to fully explain the benefits you can gain from investing in mutual funds. He should know better and he should explain it to your ability. The role of the Financial Advisor is to orient you on both the positive and negative sides of the mutual funds, please remember that. Your Financial Advisor should educate you, than offer you with other products and services.

Mutual fund investment features and offerings may vary across companies. In my case with Sun Life, I was presented with three types of mutual investments. This includes the Low Risk, High Risk and Balanced.

You can choose where to place your mutual fund investment. In my case, I played it safe. I availed of the Balanced Investment. Though during my last meet up with my Financial Advisor, I decided to diversify and place my additional investment to the high risk group.

Now that I’m getting specific with the requirements, I will answer the question that is bugging everyone.
How much is the minimum requirement for investment?

In my case with Sun Life, it’s Php 5,000 (around $ 128).

Did the figure surprise you? For as low as Php 5,000, you can become a Mutual Fund Investor! Perhaps, you can set aside some money for shopping, midyear bonus or save up for some months for this amount.

All the requirements were already enumerated, allow me now to answer the most awaited question. How much can you earn from investing in mutual funds?

One of the main reasons why I decided to invest in Mutual Funds is the decreasing interest rates implemented by local banks.

When I started working, local banks offer an annual interest rate of 1% for regular savings account. Years after joining the workforce, I was disheartened by the annual interest rate of most banks. Who will be happy with 0.375% to 0.5% interest rate? With mutual funds investment, the earning interest rates are fluctuating depending on the performance of the economy. The rates are way higher than 1%. In like manner that the earning rates are not too-good-to-be-true. Pyramid scamming and those fly by night investment houses? Mutual funds are way different than these fiascos because as I have said, the entire system is supported by a core of Risk Managers, Researchers and a reputable company to begin with.

What's also best about Mutual Funds is that you can pull out your investment any time. Although this act will have its own negative consequences. You have to pay a minimal amount to retrieve your money, your Financial Advisor earns a negative reputation and the worst, you lose the opportunity to earn as time progresses.

If let us say for some reason, the economy is not performing well and you decided to pull out your entire investment. Would the company allow you to do so? Yes but this move will prevent you from earning when the economy returns to its cycle of peak.  However, in cases when unexpected circumstances like death forces the company to pull out your money, your legitimate heirs are entitled to receive the totality of your earnings upon presentation of the required documents.

I think I have written and provided some information about Mutual Funds. In case you have questions, feel free to leave a comment and I will answer to the best of my ability. *hopefully!*


  1. You have taken a lot of time and energy in preparing a wonderful, informative post. It is good that you are preparing yourself now for your future. So many people wait until they are older and the time to act is when you are young, as you have discribed in your post. You will be a rich woman someday Diane!!

  2. It's wonderful that you've started to invest at such a young age. Mutual funds are a great idea and a good alternative to putting all your eggs in one basket with an individual stock. You're smart to stay on top of your funds and not just invest and run:-) Thanks Diane...hope you're having a great week.

  3. I think it was my pleasure to read this post because on reading this post I came to know many things about mutual funds and mutual fund Investment companies.


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