One way to prepare yourself for financial security in the future is to find the right investment. If you're looking for a beginner-friendly way to let your money grow through passive income, consider mutual funds in the Philippines. A fund manager will handle your portfolio and make investment decisions on your behalf.
To know if mutual funds are the right investment for you, you need to learn how they work. We’re breaking down the basics for you, so keep reading to learn how to invest in and earn from mutual funds in the Philippines.
What are Mutual Funds in the Philippines?
A mutual fund is "an investment company that pools the funds of many individual and institutional investors to form a massive asset base," according to the Philippine Investment Funds Association (PIFA).
Some examples of mutual funds in the Philippines are funds managed by investment companies such as Sun Life, ATRAM, ALFM, Philam, and Philequity.
These investment companies are different from investment platforms like COL Financial and FirstMetroSec. COL's and FirstMetroSec's platforms provide the online tools that investors need to buy and sell mutual funds in the Philippines. They don't manage funds as mutual fund companies do.
❓ How Do Mutual Funds Work?
Mutual funds are professionally managed bonds, stocks, and other investment products. They're made up of a pool of money collected from various investors. The money is then used to invest in different assets.
Fund managers manage mutual funds for investors. They allocate the fund’s assets and try to produce capital gains or income for the mutual fund investors.
If you’re an individual investor, you can access equities, bonds, and other securities via mutual funds. As a shareholder, you’ll get equal shares in the gains or losses of the fund.
When the funds earn money, investment managers decide whether to distribute the earnings to investors or use the profits to invest again in other assets. When they opt to reinvest, they start building a portfolio of shares, which also increases the chances of investors earning more.
4 Types of Mutual Funds in the Philippines
You can choose to invest in one or a combination of mutual fund types. Each type caters to various investment timeframes, financial goals, risk appetite, and instruments where the pooled funds are invested.
💸 Bond Funds
Also known as a debt fund, you use this type of mutual fund for beginners to invest in bonds and other debt instruments to generate monthly income for investors. In general, bond funds only require a minimum investment.
This type of mutual fund is ideal for investors with low to moderate-risk appetites who want to protect their savings against inflation. Bond funds may also offer higher profits compared to time deposits and money market investments.
💸 Equity Funds
These are typically used to invest in stocks. Equity funds invest in the shares of different companies to make a profit. Some equity funds may even target specific sectors for stock investment.
This type of mutual fund investment is perfect for investors who have a higher risk appetite and want a longer timeframe for investment. If you are a seasoned investor with experience in the Philippine Stock Market (PSE), equity funds may be ideal for you.
💸 Money Market Funds
This type of mutual fund only invests in high-quality, short-term instruments like cash and cash-equivalent securities. In general, money market funds invest in certificates of deposits (CDs), treasuries, bankers’ acceptances, and repurchase agreements.
Are you a mutual funds beginner with a lower risk appetite? This mutual fund might be right for you. Because money market funds carry lower risks, the returns can be quite small as well.
💸 Balanced Funds
Balanced funds are a mix of bonds, stocks, and other securities. They're also known as hybrid funds because they aim to make a profit by investing in a combination of various mutual fund types. Typically, balanced funds are composed of 60% stocks and 40% bonds.
Typically, balanced funds are ideal for investors with low to moderate appetite for risk who want to earn a bit more than what bond funds offer. The investment timeframe for this type of mutual fund is three to five years.
How Do Mutual Funds Differ From Other Investments?
🆚 Mutual Funds vs UITF
In the Philippines, mutual funds are similar to unit investment trust funds (UITFs). They’re both a pool of investments where each fund contains different holdings as compared to stocks. These two investment vehicles differ in the companies that offer them and the government agencies that regulate them.
Insurance companies typically manage mutual funds, while banks handle UITFs. The Securities and Exchange Commission (SEC) regulates mutual funds companies in the Philippines. For UITFs, the regulatory body is the Bangko Sentral ng Pilipinas (BSP).
In addition, the difference between mutual funds and UITFs is that you buy shares with the former and units with the latter. Buying shares of a mutual fund makes you a shareholder of the investment company because you're buying part of the company. That's not the case when you buy UITFs.
🆚 Mutual Funds vs Stocks
You may think that mutual funds and stocks are the same. However, from a financial expert’s point of view, mutual funds and stocks technically differ in the way your money is invested.
In stocks, you invest your money in a single company, while a mutual fund offers more diversification by bundling many company stocks into one investment.
Mutual funds in the Philippines allow you to put your money in different assets from different companies that earn you shares and generate profits and losses.
|Shares in one company
|Shares in a pool of funds
|Can be owned and managed by the investor alone
|Managed by an investment manager or an asset management company and owned by different investors
|Own shares in a company
|Own shares in a pool of fund
|Risk: Low due to professional management is done by the fund manager
|Company's performance affects the money you’ve invested
|Skills of fund managers and behavior of investors affect the money you’ve invested
|Value of profit is based on the current price of the share in the stock market
|Value of profit is based on the net asset value of the investment portfolio
🆚 Mutual Funds vs ETFs
An exchange-traded fund or ETF is similar to mutual funds in the Philippines. Both ETFs and mutual funds are handled by asset management professionals. In both funds, you put your money in a “basket” of investments.
However, unlike mutual funds, ETFs require your investment manager to get into contractual relationships with authorized participants or financial institutions who are actually large broker-dealers.
|Mutual Funds and ETFs Similarities
|Mutual Funds and ETFs Differences
|Funds are managed by an asset management company
|Mutual funds require minimum investments, while ETFs allow you to purchase even only one share
|Money is spread across different companies or assets
|ETFs cost less. Mutual funds charge an internal cost of at least 1%
|Accommodate low investments
|Mutual funds are traded once a day, while ETFs are traded throughout the day
|You can withdraw your money after calculating the net asset value, but you’ll need to pay fees even when your investment undergoes losses
|Reinvesting your assets is easier in mutual funds. Reinvestment in ETFs can be done only if the broker offers a dividend reinvestment plan
How to Earn Money from Mutual Funds in the Philippines
The return on investment of mutual funds varies depending on the price of a fund. That said, you can earn a profit from mutual funds in the Philippines in three ways—dividends, capital gains, and increased net asset value (NAV).
A mutual fund can earn profits from dividends on stock or interest in assets. The mutual fund company will then pay you most of the income, minus the expenses incurred by the company.
With a mutual fund with dividends in the Philippines, you can receive payment via check or choose to reinvest the profit to purchase more shares.
📈 Capital Gains
When a fund sells securities that have increased in value, the fund will earn a capital gain. At the end of the year, the mutual funds company will then distribute these gains, minus any capital losses, to their investors.
📈 Increased Net Asset Value
The net asset value (NAV) represents a fund’s per unit market value. If the market value of the fund’s portfolio rises, then the value of the fund and its shares also increase. The higher the NAV, the higher your investment’s value is.
Take note that your potential earnings are subject to fees and other charges as stated in your chosen mutual funds company’s terms and conditions.
Pros and Cons of Mutual Funds Investment
Mutual funds are perfect for newbies, especially if you want to start investing but can’t actively manage your own money yet. However, they also pose some disadvantages that you should know before shelling out your hard-earned cash.
Mutual Funds Advantages
You can easily invest in mutual funds in the Philippines over the internet. Whatever your financial goal may be, there's a mutual fund that fits your needs.
You also don’t have to be actively involved in the investment. Once you find a mutual funds company that you trust, you'll have a relatively small part to play. The money manager will do all the legwork.
👍 Low Minimum Investment
Mutual funds with a low minimum investment in the Philippines require around ₱1,000 to ₱5,000 as your initial investment while succeeding investments start at ₱500. This makes mutual funds investing affordable and accessible for newbies who don’t have much money to shell out.
👍 Professional Money Management
As an investor, you'll benefit from the expertise and full-time service of a professional fund manager who will make investment strategies and decisions on your behalf. They ensure maximizing your gains while minimizing risks. All you have to do as an investor is to put in the money.
👍 High Liquidity
Because mutual funds are a highly liquid investment, you can buy or sell your shares immediately, usually within a business day.
👍 Good Diversification
Your money is invested in a variety of assets, helping minimize the risk of losing your investments.
Mutual fund companies in the Philippines are regulated by the SEC. They also must comply with the Investment Company Act (Republic Act 2629).
Financial institutions that offer mutual funds cannot invest in certain assets or get involved in certain transactions. All these things protect you against illegal and unfair investment practices.
Mutual Funds Disadvantages
👎 Fees and Charges
Because someone else is managing the fund for you, you'll be charged some fees and charges no matter how the fund performs. You may have to pay an annual fee for fund management, usually based on a small percentage of your shares’ total value.
👎 Less Control Over Your Portfolio
When you invest in mutual funds in the Philippines, you pass on all control to a professional fund manager who makes all investment decisions for you. You can’t step in to make strategies for the fund.
👎 Potential Risks
For conservative investors, mutual funds may not be the right fit. Low-risk mutual fund investments have only minimum returns. Returns aren't guaranteed as well. You can experience losses from time to time.
However, this is the importance of gaining a long-term investing mindset. You can avoid losses by giving your investments more time to increase in value and achieve larger gains.
How to Invest in Mutual Funds in the Philippines
Here are some of the steps to take if you want to learn how to invest in mutual funds in the Philippines:
Step 1: Evaluate Your Goals
Before deciding to invest in mutual funds, analyze what your financial goals are. Ask yourself why you want to start mutual fund investing. What's your risk appetite? How much money are you willing to invest? This will help you evaluate whether mutual funds are the best investment vehicle for you or not.
Step 2: Choose the Right Company That Fits Your Needs
Once you’re sure that mutual funds are the way to go, research mutual fund companies in the Philippines. Make sure these companies are regulated by the SEC.
Several companies tied to banks and insurance firms can help you get started in mutual funds. You can visit them in person to inquire about investment opportunities or explore their websites and compare their offerings against each other.
You can also visit the Philippine Investment Funds Association (PIFA) website to find the best company to invest in based on its NAVPS performance. NAVPS stands for Net Asset Value Per Share, which represents a mutual fund’s price per share.
Step 3: Talk to Your Agent
When you’ve finally chosen the best company that will manage your investment, an agent will be assigned to answer your questions. List down all your questions before meeting with the agent so that you won’t forget them.
The agent will help you find the best type of mutual fund for your needs. He or she will be there to guide you from investing to monitoring your investment.
Step 4: Pick the Best Type of Mutual Fund for You
The next step is choosing the kind of mutual fund you would like to invest in. Consider your financial goal, risk appetite, and preferred investment timeframe when picking one. Several different accounts are available locally and carry various kinds of risks and returns.
Step 5: Submit the Requirements
Answer the Investor Profile Questionnaire, which will help determine what kind of investor you are and your risk tolerance. You'll need to fill up a personal information sheet and submit valid IDs. Also, you'll fill up an Order Ticket to determine how many shares you plan to purchase.
Step 6: Track Your Investment
Once you’re all set, make sure to monitor your investment. Talk to your fund manager to get updates about the performance of your share. Remember that payments for mutual funds should only be done at the company’s office or at a partnered bank to avoid any issues.
Best Mutual Funds in the Philippines in 2023
Now that you know how to invest in mutual funds in the Philippines, here are a few examples of the top mutual funds in the Philippines (as of November 15, 2023) based on NAVPs.
☑️ Top-Performing Bond Funds in Peso Securities
|NAV per Share
|ALFM Peso Bond Fund, Inc.
|ATRAM Corporate Bond Fund, Inc.
|Cocolife Fixed Income Fund, Inc.
|Ekklesia Mutual Fund Inc.
|First Metro Save and Learn Fixed Income Fund, Inc.
☑️ Top-Performing Money Market Funds in Peso Securities
|NAV per Share
|ALFM Money Market Fund, Inc.
|First Metro Save and Learn Money Market Fund, Inc.
|Sun Life Prosperity Peso Starter Fund, Inc.
☑️ Top-Performing Balanced Funds in Peso Securities
|NAV per Share
|ATRAM Dynamic Allocation Fund, Inc.
|ATRAM Philippine Balanced Fund, Inc.
|First Metro Save and Learn Balanced Fund, Inc.
|First Metro Save and Learn F.O.C.C.U.S. Dynamic Fund, Inc.
|NCM Mutual Fund of the Phils., Inc.
*All consolidated data are based on the list provided by the Philippine Investment Funds Association.
Where to Invest in Mutual Funds in the Philippines
Since investing in mutual funds in the Philippines will require you to have an investment platform, we’ve listed a few options where you can put your hard-earned money.
|Starting Investment Amount
|COL Fund Source
FAQs on How to Invest in Mutual Funds
1. Do I lose money when investing in mutual funds?
You may lose money because the securities or assets in which your money is invested can go down in value.
2. Should I pay taxes when investing in mutual funds?
Mutual funds are taxable. But there are tax-managed funds, which are a little more expensive, that minimize the risk of investors.
3. Can my mutual fund investment drop to zero?
Yes, there’s a possibility. However, since your fund will be invested in different assets or securities, the possibility of all these assets losing value at the same time is minimal.
4. Are mutual funds safe?
A mutual fund's returns may fluctuate depending on the net value of assets after each trading period. As an investor, you shouldn't worry about the short-term falls in values. You just need to choose the right investment platform that fits your financial goals.
5. Are mutual funds a good investment for retirement?
Yes, mutual funds can be a good investment for retirement. Since your money is spread across different types of assets, one company’s failure can have minimal impact on your capital.
6. Can I get my money back anytime from a mutual fund investment?
Yes. Ideally, you can buy and sell your shares before the execution of the next NAV. However, you should remember that some mutual funds investment platforms have a lock-in period. This means you can't withdraw your cash until this period is over.
Mutual funds are a great starting point if you have little to no investment experience. You won’t need to track the market on a daily basis since an expert will handle it.
However, before figuring out how to invest in mutual funds, evaluate your needs and goals first. Determine what you’re investing for and your risk tolerance.
Also, make sure to research different companies offering mutual funds in the Philippines and compare them against each other. Choose the type of mutual fund that's right for you. Lastly, always monitor your investment.
-  Should You Invest in Stocks or Mutual Funds? (NerdWallet, 2023)
-  Net Asset Value (NAV): Definition, Formula, Example, and Uses (Investopedia, 2023)
-  NAVPS Performance (PIFA, 2023)
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