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Wednesday, April 29, 2009

The Basics of Investing in Mutual Funds in the Philippines

By Jeffrey Mute

Mutual funds have become a fad investment in the Philippines today. This is because it has several advantages over the usual investment opportunities in the country. For those who want to be a part of this up and coming industry of mutual funds, it is important that you get some basic ideas of how the fund works and the ways you can benefit from it.

In laymans explanation, mutual funds can be understood as a fund which has an asset base jointly put up by different shareholders which is then invested into several diverse investment vehicles. A fund manager is designated to do all the decision-making regarding the kind of investments the fund will be put into. Invariably, he sees to it that the funds investments will gain maximum returns for the shareholders.

A mutual fund company is legally owned by its investors, and the amount of ownership is determined by the number of shares owned. Likewise, the potential income from the fund is also established on share ownership.

There are several reasons why mutual funds are popular today. The most obvious one is the minimal investment required. With P5000, the average Filipino worker can now take part of this lucrative industry. One other reason is that an investor wont have to do so much work to see his money grow as a professional fund manager takes care of this. Mutual funds are also easily converted to cash when needed.

Yet mutual funds also have a negative side. The presence of a fund manager can be good, but it also means that you wont be able to take part in the decision-making process. With whatever investment the fund manager chooses to put the funds money in, the only thing you can do is hope that it will yield positive returns for the company. Also, be aware that certain mutual fund companies charge fees. You should take this into consideration as it can affect your investment in the long-term.

In contrast, mutual funds also have its disadvantages. One of which is that you wont be part of the decision making process with regards to how your money will be invested. Since a fund manager is the one who makes this decision, you can just hope he chooses the right investments for the mutual fund company. The worst that can happen is that your investment will not gain anything, but the possibility of this is very dim.

On the brighter side, a mutual fund is a sensible investment because you dont really have to put in much effort. You just invest money and the work is done entirely by the fund manager from researching to monitoring your investments. The liquidity of mutual funds is another advantage. This means that you can convert your shares to cash whenever you need it. Governing laws state that you will be able to get your money back within seven days upon surrendering your shares. And possibly the best advantage of all is the minimal investment required. Some companies can get an investor started with a P5000 investment, an amount which an average worker can afford.

So, youve finally decided that you want to invest in a mutual fund, what are you to do next? First, choose a reliable mutual fund company that you are comfortable working with. Then, fill up an application form from a broker and youre good to go. But dont stop learning about mutual funds once you finish filling up the application form, continue updating yourself with the industry so you are able to keep up with your investment. - 23208

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