This is the second post of the series Mutual Funds in the Philippines, if you have not read the introductory article of the series you can read the post with the link below.
Mutual Funds in the Philippines
At present, mutual fund companies in the Philippines are offering four (4) types of mutual funds, these are generally categorized on the objective of the fund and what type of investment vehicle it is being invested.
Types of Mutual Funds in the Philippines
Equity fund
This is the riskiest type of mutual fund because these is generally the type of mutual fund investing in stocks. Whatever market movement it may have for the stocks will also be reflected with equity funds. Investing in equity funds is like investing in stocks indirectly.
This type may have the highest risk but it can also give you the highest returns especially if you are planning for a long term investment.
Balanced fund
This is a mixed investment of stocks and bonds. By balancing the portfolio of investment between stocks and bonds by professional money managers, investments tend to be less riskier than pouring it alone with stocks.
However, it is still considered risky compared to other funds such as the bond and money market fund but it can also offer higher returns for your money.
Bond fund
This is a relatively low risk type of investments wherein returns are guaranteed primarily by government and large reputable companies with their issued certificates such as treasury notes and commercial papers which typically offers fixed returns on their issued notes.
Because it is low risks, returns for this type of investment is also much lower with equity, balanced and bond funds.
Money Market Fund
This type of fund is almost similar to bond fund, the only difference is this is much short term fund since its goal is to provide investors with liquidity of their investment while preserving the value of their investment in a short period.
Similar with bond fund, since it is considered a low risk investment, it has also low returns on the invested money.
In choosing what type of mutual fund to invest, it is important to consider your investing criterion. It will tell what type of mutual fund you should choose base on your goal for investing.
1. Are you looking for growth or capital preservation? – This should be number one in your list of criteria because sometimes, just asking this question might already answer what type of mutual fund you should get.
Simply, if you want growth for your investment you should go for equity or balanced fund and if you are just preserving capital for any purpose then you can go for bond or money market fund.
2. What age you plan to invest- Are you a little bit old when you realize that you should invest already? You might be thinking that you don’t have enough time to go for conservative investment growth? You might want to see it grow in a short investing period or perhaps you are investing for your retirement.
Age must be considered since in investing, time is in your side if you consider investing early. Obviously, the younger you are when you started investing, the more time you will have to grow your money.
3. Where do you intend to use the money invested? – As for my example, I am planning to get an investment for my daughters education and another one for future business opportunities.
With my daughter’s education, I am planning to get an equity fund since it will be a long term investment and with future business opportunities, I don’t want my money to be exposed in unnecessary risk to preserve its value., I would go for bond fund since it can give me a modest return with relatively low risk investment.
4. Risk tolerance – Can you handle the up and down swings of the market and seeing your money worthless today and the next week ballooned into much higher value and then down again?
Equity and Balanced fund can be risky as stock market that is why it can also yield the biggest return for you. While Bond and Money Market has lowest risk of the mutual funds, it also give lowest returns on your money.
So that’s it for now, be sure to be around for the next article which is how to compute your earning with Mutual Funds.
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{ 2 comments… read them below or add one }
for me, I’d prefer having an equity fund and balanced fund. That way there’s always a 2nd choice if either one of the two were to go down. Just like a parachute, If your plane goes down, at least you don’t have to worry falling down because you have a parachute.
Hi there Jade,
That actually depends on what style of investing you have. I will soon post my little study on the performance of mutual funds in the Philippines in the coming days and analyze for yourself what fits you the most.
Thanks for dropping by! = )