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1. It is easy.
Well, I would like to say that it’s easier than buying direct shares yourself. A managed fund does all the hard work for you, such as buying and selling securities, and paying the fees to the many parties involved in each transaction.
The things that you need to know is the fund you are investing, its risk and return, fees and charge, whether its features fit to your situation and the initial minimum capital.
So yes, it does require a bit of knowledge about stocks and bonds. But it is going to be worth it. Afterwards, you don’t have to do much anymore except reviewing the performance of the fund and your risk profile.
2. It requires little capital.
Cost is no longer a reason not to start building a strong financial foundation as soon as possible. For investment-linked policy, you can both have an insurance and investment combined in one contract that is reasonably priced every month.
By the time that you have adequate income protection, then you can go on investing in other riskier assets, such as real estate, other managed funds and direct stocks.
For UITF’s and mutual funds, they both have affordable starting minimum required balance.
3. It is managed by an expert.
A fund manager is a person chosen to take care of the fund’s performance. S/He gets the pulse of the market, and decides on some important decisions such as what stocks to buy and when to buy them, or whether to sell them and when. Every day, s/he monitors the health of the economy, tracks financial standing of companies that form the fund’s portfolio, follows prices of securities and makes decisions.
The presence of a fund manager is perhaps a managed fund’s best selling point. Because of him/or, investors like you don’t have to do all the work necessary to have a well-managed, well-performing investment.
4. It earns passive income.
Unlike other sources of income that you need to actively engage in, like a full-time job, business or direct shares, a managed fund can provide potential earnings without you having to do anything.
The Fund Manager is responsible for ensuring that it performs optimally, and that its stated objectives are followed. Of course, it is important to remember that a Fund Manager can only do so much in times of serious recession. That’s why it is also important to know the risks involved, which brings me to the next reason.
5. It has clear risk and return profile.
Risk is about how uncertain an investment will give you income. Return, on the other hand, is the potential income that you might receive for investing. Take note of the words ‘potential’ and ‘might’, because returns are not guaranteed and instead depend largely on the earnings.
With managed funds, you will be given a clear comparison of risk and returns of each of the different products that you can select.
But what are the risks and returns of each of the different funds? Below is a table comparing them.
6. It offers many choices for investors.
You buy can products that will be appropriate to you and your situations. And this is actually good because you can pick the ones that fit you. You can actually invest in funds according to your risk appetite, the type of asset, the amount of money to be invested and even the type of currency.
|Equities||Primarily engaged in buying stocks|
|Balanced||A mix between equities and bond|
|Bond||Primarily engaged in safe securities, such as government-issued bonds.|
7. It can be a savings vehicle for medium- and long-term goals.
Historically, managed funds have out-performed the returns that are provided by typical bank accounts, including time-deposit accounts. Of course, there is a trade-off. Banks offer relatively safe way through deposit accounts, but it also has really low possible income. I have checked around, and it was hard to find more than 0.50% annual interest rate in savings account.
With managed funds, while the risks are higher, the potential returns that you can get is also higher.
|Equities||8% and higher|
|Balanced||4% and higher|
|Bond||2% and higher|
The above table is not based on any particular fund. The data are my personal estimates on a really good year. During market slowdown, some or even all of the above will experience not only lower expected returns but even possibly capital loss.
8. It offers diversification.
Diversification means that you invest in a variety of assets and types of funds. Its main purpose is to lower your overall exposure to risks. In managed funds, there are so many different types of diversification that you can choose from.
Here are some of the examples:
- Asset class. You can buy funds that are purely made up of fixed income, purely made up of equities, or a combination of both.
- Risk. In connection with asset classes, you can actually choose a fund that suits your risk profile.
- Portfolio. You can choose a fund that contains three or more asset classes, such as a balanced fund. In fact, with investment-linked policy, you can combine different funds into the mix with different allocation. For example, you can invest your contribution to 80% to Equities, and 20% to Bond.
- Market. There are products that are invested in local and international markets, such as Asian, European and American.
- Term. If you only want to participate for a period of years, there are funds that have a timeline. For example, Metrobank has a 3 year bond.
- Industry. You can also pick a product that is invested in businesses led by Filipino of lineage. AXA Philippines has Chinese Tycoon and Spanish-American Legacy fund.
- Currency. You can also have a selection of accounts that are in peso or dollar currency.