Hi Bro and Sis! Do you have investments on MF? What MF? Mutual Funds... What is it? Encountered that discussion? Explain it technically and further confusing the matter?
Well, struggle no more... MF is so simple and made so accessible nowadays. Mutual Funds is like a cooperative where you put your money together. It does not matter how much each of the member initially put in. Some can put in minimum required amount which in most cases is just 5000 Php initially, and for additional investment is only 1000 Php. This money is then handled by a Fund Manager who is responsible to allocate the funds. You can liken the Fund Manager to your mom who is doing the groceries and, the investors to the family members who shells out their share.
When your mom goes to the supermarket, she is responsible to pick up all the stuff you need. She decides how much of each item to get. Similarly, the Fund Manager chooses what stocks to invest on. However, he is limited by certain guidelines of investments as promulgated by Securities and Exchange Commission. We will tackle this separately to make it simpler this time. These guidelines, much like that of a family’s household need, depend on what your financial needs are. If you are investing for a long term need or short term. It also depends on your risk handling capability. You want a high risk or a low to no risk?
Okay, are you still with me? Term of investment and risk capabilities define what kind of Mutual Fund is suitable for you.
There are three kinds of Mutual Fund you can get into. First is the Bond Funds. These are primarily government issued securities. It's like giving your money to be used by the government with a promise that the government will pay it back with interest. In short, this is your money lend to government. This kind of Mutual Fund is the lowest risk but is also with the lowest rate of return. It is definitely a low to no risk for you can rest assure that your money will get paid. You know why? Because the government has 2 sure ways to ensure you are get paid. 1. They can print new and more money to pay off debts, and 2. They can raise revenues by collecting more tax to pay off what they owe. This Bond Funds has a performance of about 5% per annum on the average.
The second type is that of Equity Funds. Equities are shares of stocks of a company. Thus, this is more risky, more volatile, and can result to higher gains or high losses. But, generally, the trend has been on the rise. In the last 20 years, Equity Funds had been performing very well above 12%. In fact last year, Philequity Funds performed at a record high of 64.9% and a lot of those who knew how to invest in the mutual funds earned a lot. Equity Funds are like buying an item in the market and holding it, or hoarding it , if you wish, hoping that some time later, in view of demand and supply, the cost of this item will go up. You see the similarity of the rise in price of “galunggong” (local fish) and that of the stocks? Well, while you cannot hold for long periods the groceries or stuff you buy from real market, equities stocks on the other hand can be held for as long as you want.
The third and last kind of Mutual Fund available to us is the Balanced Funds. This is simply a combination of the Bond Funds and the Equity Funds. It combines the low-risk-low-gain of a bond fund and the high-risk-high-gain of equity funds. This type of Mutual Fund is performing in the 7-10% range. So instead of having the money allocated on high risk equities, or just on the more conservative bond funds, the money that is pooled together is invested by the fund manager on combination of both.
In all three cases, there are government regulations that the fund manager has to follow. And in all cases, our money that is pooled together is not handled by the Fund Manager but goes directly to a bank that will hold the money.
There is no guaranteed rate of returns for each type, but the performance in the last 15 years is holding on to the average mentioned above.
Now that we know what MF is, I challenge you now to transform this knowledge to action and reap the harvest later. If you invest on a Mutual Fund that can earn a rate of return of 12% for 25 years at 1000 Php per month, you will be able to accumulate 1.686M Php. Make that 5K Php per month and you’ll have 8.43 M Php. So who says, it’s difficult to accumulate millions? Continue to invest 5K per month on Equity Funds which can yield 12% rate of return for 35 years and you’ll accumulate 27.3M Php!
So there you are Bro and Sis. It does not take you much to accumulate millions. What you just need is the literacy of where to invest and the continuing discipline to put in small amounts that will soon accumulate to millions.
If you need further education and information, read books especially those of Bro Bo (8 Secrets of the Truly Rich, and Choose to be Wealthy), check out the www. icap.com.ph . Better yet, send me your email so I can guide you one on one.
Happy Investing!
