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Mutual funds provide a combination of benefits to
investors which cannot be matched by other investment
instruments. These advantages are as follows:
Professional Management
One of the main attractions of mutual funds is that it
affords its investors, particularly the small ones, the
services of full-time professional managers whose job is
to analyze the various investment products available in
the market and select those that would give the best
possible returns to the fund and its shareholders.
Low Capital Requirement
Direct investments usually require substantial capital.
The minimum investment amounts for Treasury Bills and
commercial paper, for instance, range from Php100,000 to
Php1 million depending on the bank or investment house
you are dealing with. This also holds true for stocks
because while an investor may be able to buy one “lot”
(shares are sold in board lots of 10 to 1 million shares
depending on the price at which these shares are traded)
for as low as Php1,000 to Php5,000, he may not find a
stockbroker who will service his account because they
prefer to deal with high net worth individuals (rich
people in layman's terms) or at least with people who
have substantially more than just Php5,000.00 to invest.
In contrast, most mutual funds in the Philippines
require a minimum initial investment amount of only
Php5,000.00 and minimum additional investments of
Php1,000.00.
Diversification
There is a saying that goes, “Do not put all your eggs
in one basket.” This adage is especially true in the
world of investments which is full of uncertainties.
There is no such thing as a “sure” thing. An important
investment principle that requires holding several
securities to reduce the risks associated with investing
in individual securities is called diversification. When
people invest in a mutual fund, they achieve instant
diversification because the fund is usually invested in
a wide array of securities.
Liquidity
Liquidity is the ability to readily convert investments
into cash. Other investment products require investors
to find a buyer so that he can liquidate his investment.
That is not the case with mutual fund shares because the
fund itself stands ready to buy back these shares at the
prevailing Net Asset Value Per Share. While the law
provides that redemption proceeds must be given within
seven (7) banking days from the date of the redemption
request, most funds are able to pay the redemption
proceeds within a day. Mutual funds are, therefore,
considered very liquid investments.
Safety
Safety is a very important consideration for most
investors. Sometimes even more important than potential
returns (well… on second thought, maybe not).
Nevertheless, mutual funds are highly regulated by the
Securities and Exchange Commission under the Investment
Company Act and its implementing rules. They are
prohibited from investing in particular investment
products and engaging in certain transactions (this is
discussed in greater detail in a latter section). They
also have to submit regular reports to the SEC as well
as to their shareholders. As mentioned earlier, all of
the fund's assets must be held by a custodian bank for a
safekeeping.
Potential Higher Returns
Because a mutual fund is managed as a single portfolio,
it is able to take advantage of certain economies of
scale. For instance, with its millions under management,
it can negotiate for lower stockbrokerage fees or
command higher interest rates on fixed-income
investments. In the end, however, it is still the
investment adviser who really makes the big difference
between making direct investments and investing in
mutual funds because very few individual investors can
match the experience and skill of full-time professional
fund managers.
Convenience
In other countries, mutual funds can be purchased
directly from a funds or through a broker, financial
planner, bank or insurance agent, by mail, over the
phone and increasingly over the internet. The popularity
of mutual funds in the Philippines is fast catching up.
It may be a matter of time for this level of convenience
to be a reality in the country. Funds also offer a
variety of other services, including monthly or
quarterly account statements, tax information, and
24-hour phone and computer access to fund and account
information. |
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