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A Mutual Fund is an
investment company that pools the funds of many
individual and institutional investors to form a massive
asset base. The assets are then entrusted to a full time
professional fund manager who develops and maintains a
diversified portfolio of security investments. People
who buy shares of a mutual fund are its owners or
shareholders. Their purchases provide the money for a
mutual fund to buy securities such as stocks and bonds.
A mutual can make money from its securities investments
in two ways: a security can pay dividends and interest
to the fund, or a security can rise in value. The fund
passes any dividends, interest or profits on the sale of
its portfolio securities, less fund expenses, to
shareholders in the form of distributions.
Different Funds, Different Features
In the Philippines , there are currently four basic
types of mutual funds---stock (also called equity),
balanced, bond and money market funds. Bond funds invest
primarily in bonds such as treasury notes issued by the
Philippine government and commercial papers issued by
reputable companies in the Philippines . Having a full
basket of only fixed-income securities, bond funds
provide capital preservation while maintaining a
conservative stance in terms of asset allocation. Like
bond funds, money market funds also have a conservative
stance since they have a full basket of fixed income
funds. The main difference lies in the term of
investments of money market fund investments, which is
one year or less. Equity funds invest primarily in
shares of stock issued by Philippine corporations. The
dominance of stock issues within the portfolio positions
the fund to attain a more aggressive rate of growth.
Balanced funds invest in both shares of stocks and
bonds, thereby accessing the growth potential of stocks
tempered with the presence of secure fixed-income
instruments. Professional fund managers create value for
shareholders by providing superior yields within
controlled risk exposures. Certainly, expective in both
security selection and asset allocation go a long way in
ensuring better long-term rewards for mutual fund
investors. |
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Why
You Have To Invest? |
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Interest rates can be volatile and
passive short-term investing can erode investment values
due to inflation. On the other hand, the stock market
has historically outperformed both short and long-term
bank deposit rates. Unfortunately, not so many people
are familiar with active financial management and
effective diversification. Through mutual funds, even
investors with limited resources can participate in
combinations of these high-yielding investment
instruments without the headache of personally selecting
and monitoring a portfolio.
Mutual funds are ideal vehicles for growing money over
time. It can be used as a savings medium for retirement,
education for a child, or building up a long-term cash
fund for some specific future financial objective. While
largely thought of as a retail financial product, mutual
funds are also ideal instruments to augment the yields
generated by organizational funds and enhance their
level of diversification. Mutual funds have been popular
investments for pension and trust programs, other
employee benefit funding objectives, and institutional
asset-liability matching. |
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