Philippine mutual fund for beginners: How to start investing

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For the longest time, I’ve been thinking about writing this guide because mutual funds are a good passive income option but they’re not well understood. By understanding It’s also where I actually started getting to know about financial planning.

In this article, I will discuss mutual funds in general, a few fast facts, its benefits, disadvantages and a guide on getting started. If you haven’t already, you can read the following related articles:

What is a mutual fund?

A mutual fund is a pool of money from the public that is invested with an expectation of a profit. Because of the way it invites people to invest, it is also called pooled or managed fund. The money that is gathered is used to buy and sell (trade) securities. Securities are assets that have the potential to grow such as stocks or bonds.

A stock represents part-ownership of companies such as PLDT, Ayala, SM, Jollibee, etc., and it can be bought or sold in the Philippine Stock Exchange. By investing, you can actually share in the potential earnings of Philippines’ biggest corporations.

Mutual funds allow you to be part of the earnings potential of the country’s biggest companies. (From Rampver)

A bond meanwhile is a proof of debt. The debtor, which might either be the Philippine government or companies, pays interest regularly and settles the debt in full when it matures.

Fund manager

So if there is a need to buy and sell stocks and bonds, who does the trading? It’s the fund manager that does all that. Fund managers are experts in securities and they will do the trading in behalf of all the investors. In exchange, investors pay annual fees and other charges to cover for the operation of the fund.

Investment objective

Fund managers however cannot trade just any way they like. They are bound to follow the investment objective found in the prospectus.

Prospectus

A prospectus is a document that shares information about the investment, its objective, risks, costs, shares being offered, and other policies.

So for an example, a bond fund can only purchase bonds. It is not allowed to hold stocks. Likewise, a stock fund may be limited to buying only stocks that are traded in the Philippine Stock Exchange.

Earnings of mutual funds

They earn depending on securities that they have invested in. A bond fund can earn from interest. Remember that a bond is a proof of debt and it works just like any other debt where you receive interest when you lend someone money.

When it buys stocks, the fund earns in two ways: dividends and stock price gains. Dividends are a part of the earnings of companies that they decide to give to their stockholders.

Dividends issued by AEV (Aboitiz Equities Ventures)

Stock price may also increase or decrease. Its price depends on how well-liked it is by traders.

Stock price movement of Jollibee Foods Corporation between June 2018 and June 2019.

Mutual fund shares

A mutual fund is itself a company and all investors are shareholders of the company. Upon investing, you become one of its owners and you obtain rights and privileges such as getting invited to the annual shareholders’ meeting, being entitled to vote, etc.

Most importantly, a number of shares that correspond to the amount you’ve invested is going to be issued to you.

Net asset value per share

But how many shares will you receive? This is where the net asset value per share or NAVPS comes in. The NAVPS is the total worth of the entire mutual fund company divided by the number of shares it has distributed to all investors. It is determined by by getting the sum of all its assets minus all debts and expenses, and then divided by the number of shares.

So for example sometime in 2017, I invested ₱5,000 in a stock fund. At that time, each share of the fund was valued at ₱0.8115. This is its net asset value per share (NAVPS). So 6,161 shares were issued to me.

DetailAmount
Original investment₱5,000
Price of each share/NAVPS₱0.8115 per share
Total issued shares6,161

Earning from mutual fund

You would earn from the increase of the price of each share. Such increase is caused by the gains derived from all dividends, rise in the value of its stock portfolio, and/or interests. For example in February 2018, I decided to withdraw. By then, each share rose to ₱0.9606, so the final amount released to me was ₱5,918.26.

That’s 18.36% return on investment (ROI) on my spare cash that I was saving. Not really bad considering that time deposit gives 1% to 3% interest ever year and savings accounts only give 0.25% annually. (Okay, I received so many questions. I closed my account because I was transferring to another fund with a different objective. And yes, all stock fund must be long-term so what I did was really not advisable.)

Confirmation message on withdrawal.
DetailAmount
Total issued shares6,161
Price per share/NAVPS₱0.9606
Final amount₱5,918.26
Original investment₱5,000.00
Gain₱918.26
Gain (%)18.36%

Where can you check the NAVPS of all mutual funds?

You can visit the website of Philippine Investment Fund Association. There, you can see the net asset value per share of all mutual funds that are PIFA members. The figures won’t show up on days when the stock market is closed such as weekends and holidays.

As you can see below, the information provided by PIFA is very detailed. It allows you to see at a glance the gains/losses of all member funds.

PIFA website showing peso-denominated equities funds

To better understand the image, here is a brief explanation of the PIFA table.

  • NAVPS/NAVPU stands for net asset value per share or net asset value per unit. It is what each stock or unit would cost should you invest you want to invest.
  • 1 year return provides the gain/loss the most recent and past NAVPS/NAVPU of at least 365 days.
  • 3 year return shows the return of the fund for the past 3 years.
  • 5 year return gives you the return of the fund for the past 5 years.
  • YTD return means year-to-date. It shows gain/loss beginning from the first trading day of January of the current year up to the most recent day with a published NAVPS/NAVPU.

Differences between mutual fund and UITF

They’re actually both investments. Their differences lie with the way they are operated and regulated. For more complete comparison, you can check out the discussion on managed funds.

FactorsMutual FundUnit-investment Trust Fund
Who offersInvestment companiesBanks
Who sellsSEC-licensed advisorsBank employees
What you buyShares of mutual fundUnits of participation
PricingNet Asset Value Per Share (NAVPS)Net Asset Value Per Unit (NAVPU)
Who regulatesSecurities and Exchange CommissionBangko Sentral ng Pilipinas
Which law governs managed fundsRepublic Act 2629 – Investment Company Act of the PhilippinesRepublic Act 8791 – General Banking Law

Benefits of mutual fund

There are many advantages when you start investing.

Start small

You can open an account with ₱5,000. Other companies may even allow you to start for as low as ₱1,000. If you buy bonds directly, you’d be required to put up at least 50K or more. Purchasing stocks directly would also require you to buy them in tranche called board lot. Meaning, you can’t buy just one stock but a minimum number of shares.

Passive income

You earn passive income, and the potential gain can be even higher than savings accounts or time deposit. There is no need to get involved in the fund’s operation. At the same time, you get to enjoy the opportunity to earn extra from the increase of value in your investments. This is especially good when you’re saving up for long-term goals such as purchasing a property.

Trust fund for your kids

Are you saving up for your kids? Then you can actually request that your account be made “in trust for” or ITF. An ITF would transfer the ownership of the investment to your kids when they reach 18 years old, the age of maturity.

Tax-free

All earnings of the fund are not taxed pursuant to the regulations set forth by Republic Act 8424.

Liquidity

Do you need to withdraw because of an emergency? You can actually do that at any point (terms apply). They are required by law to allow redemption of shares—that is, to buy back the shares issued to you—within 7 days.

Experts

Take advantage of expertise of fund managers as they work to maximize the growth of the fund. There’s no need to understand the inner workings of stock exchanges, analyze financial reports of companies, or determine the value of bonds. All of that would be done by the fund managers.

Flexible

They are also very flexible. Investment companies usually operate multiple funds and so it is easy to transfer from one account to another. This is actually good whenever you are switching strategies, have different objectives in mind or adopting to a developing situation such as recession.

Diversify

Don’t put all your eggs in one basket. When you become part of the fund, you are invested by default into its portfolio of assets that may span across industries. By diversifying, you can reduce the risks of having a low return especially when an individual company or industry experiences a slowdown.

Benefiting from our developing economy

A lot of people think that only the rich get richer and that’s because they are not taking part in the growth story of our country. By buying shares from the Philippines’ biggest conglomerates through an investment fund, you can be part of their earnings. As the economy grows, your net worth can grow too.

Safe and transparent

They are considered safe due to the level of scrutiny and involvement of the Philippine government. Their operations can only start after they get a special SEC license called secondary license.

All corporations get a primary license. It is a simple business permit where SEC confirms that it is a corporation. That’s just it. Companies who solicit investment from the public, such as mutual funds, need to get the secondary license as covered in Republic Act No. 8799. (As an aside, this is actually how you can tell if a company is an investment scam or not. Aman Futures that allegedly duped ₱12 billion in Visayas and Mindanao operated without the secondary license.)

Potential higher returns

They have advantages that direct investors don’t have. Due to the huge amount of assets they manage, they can negotiate lower fees from brokers and higher interests. They’re also uniquely positioned in the financial industry, possessing expertise and skills that an individual investor may not have.

Convenient

Managing your investment is like having a bank account. It’s been made very convenient. Depending on where you are, brokers, agents, advisers and reps are easy to get in touch with. Branches are also located in major cities. There are financial seminars being offered to continue spreading financial literacy.

And once you have opened an account, it’s easy to manage because of the availability of support on transactions like buying shares, redeeming them, or transferring them through phone, email or website. I know this for a fact as I have seen many of them moving towards online access through the years. You can even set up an auto debit so that your salary gets deducted and credited to your account.

Disadvantages of mutual fund

Before you make a decision, it is important that you also understand the disadvantages.

  • Location. The investment company may not have a branch near you. It can be a concern if you want to speak with a representative in person. However, it shouldn’t be a concern if you’re used to dealing with companies online.
  • Fees and charges. There are front-end fees and annual charges. You want to check this article for a complete list of fees in mutual funds.
  • Lack of control. You are not in control of securities that are acquired or divested. In exchange, you take advantage on the expertise of fund managers.
  • Turnaround time. It may take some time for redemption of shares and releasing of money. In my experience, it is anywhere between one to three days.
  • Unmet expectations. Historical performance of the fund does not guarantee future returns.
  • Capital depreciation. When you’re in a stock fund, there’s a risk of capital loss because the market may be slowing down. This risk can be managed by investing long-term.
  • Ownership. When you invest, you are a stockholder of the mutual fund, not the individual companies that the fund is composed of.

Types of mutual funds

There are four types of funds that are in the country today:

FundAssetRiskInvestor
Index fundsStocksHighAggressive
Equities fundsStocksHighAggressive
Balanced funds Stocks and bonds Medium Moderate
Bond fundsBondsLowConservative
Money market fundsFixed incomeLowConservative
  • Stock funds are invested in stocks. They’re for aggressive long-term investors as their prices go up or down. The risk for loss of capital is high and the potential for upside gain is likewise high.
    • Index funds. The index funds purchase the top 30 companies that compose the stock index. These are also called blue chip stocks.
    • Equities funds. They are invested in stocks and have different goals.
  • Bond funds are invested in bonds. They’re for conservative investors who want to preserve their capital. Earnings are limited from interest gained from debt instruments, which are considered safer than stocks.
  • Balanced funds are invested in a mix of bonds and stocks. They’re for people who want to have earn the potential gains from stocks but seek the relative safety of bonds.
  • Money market funds are invested in short-term retail treasury bonds, treasury bills and bank deposits. They are also considered safe securities because they have low risks but also low potential returns.

Top 10 best mutual funds in the Philippines for 2019

To better help you decide, here is the top 10 peso-denominated mutual funds in the country and 1-year ROI (return on investment). Data is updated until January 2, 2020. Just a note though that actual past returns of all funds are not a guarantee of their later performance.

For the complete list, see the article on the top Philippine mutual funds for 2019. Here is the summary of the best performing for each category.

CompanyFund NameTypeROI(%)
PhilamPhilam Bond Fund, Inc. Bond11.54%
Sun LifeSun Life of Canada Prosperity Bond Fund, Inc. Bond11.20%
Sun LifeSun Life Prosperity GS Fund, Inc. Bond10.47%
SoldivoSoldivo Bond Fund, Inc. Bond8.03%
PhilequityPhilequity Peso Bond Fund, Inc. Bond7.71%
PhilamPAMI Horizon Fund, Inc. Balanced7.21%
FAMIFirst Metro Save and Learn Fixed Income Fund,Inc. Bond6.79%
PhilamPhilam Fund, Inc. Balanced6.61%
PhilamPhilam Managed Income Fund, Inc. Money market6.35%
Sun LifeSun Life of Canada Prosperity Balanced Fund, Inc. Balanced5.81%

Getting started with mutual funds

When you open an account, here are a few things to take note of.

InfoDetails
Initial investment₱1,000 – ₱5,000
Additional investment ₱500 – ₱1,000
Front-end fee0 – 2%
Exit fee0% – 1%
Management fee1% – 3%
ValueNet asset value per share
OwnershipShares
SecuritiesStocks or bonds or money market
TaxNone
  • Initial investment is the lowest amount of money that you can start to open an account.
  • Additional investment is the lowest amount you can add to your investments. You can go higher and you can re-invest as often as you like.
  • Front-end fee, also called sales load, is the percentage of your investment that goes to the company as a fee.
  • Management fee is an annual charge for the operation of the fund such as paying salary for the fund manager, brokerage fees, etc.
  • Exit fee is only charged if you withdraw within the first few months.
  • Investment value is determined by NAVPS or net asset value per share, which is the worth of each share of the fund that is issued to investors. Its value is computed by adding all of the fund’s assets minus debts and the result is divided by the number of shares.
  • Proof of your ownership is through shares issued to you. The number of shares you hold depends on your investment and the NAVPS at the time of purchase. (If you invested ₱5K and the NAVPS is ₱2, then you have 2,500 shares).
  • Securities are the assets of the fund such as stocks, bonds, or money market. They are determined by the investment objective.
  • Earnings are not taxable.

Can I trust mutual funds?

The answer is a big YES. I’ve came to know about them a few years back from a friend who used to work with a local branch of a large mutual fund company.

They are also very highly regulated by the Philippine government through the Securities and Exchange Commission (SEC). They are required to comply with the laws, rules, and regulations. They are asked to regularly send reports and documents to the government and to the investors. Failure to do so usually means penalties, and they might even have their licenses revoked and their operations suspended.

The SEC is the government watchdog on all mutual fund companies.

How do I check if the mutual fund is legit?

Well, the first company that I reached out to was actually a sister company of Metrobank. I knew Metrobank as well as anyone, so I knew that it could be trusted from the get-go.

So how can you check if they’re legit? Almost all of them are members of the Philippine Investment Fund Association (PIFA). Secondly, they must be registered with SEC (primary license) and allowed to solicit investments (secondary license). Here are a few steps that you can do.

Frequently asked questions about mutual funds

Below are some of the commonly asked questions regarding mutual funds. They can come in handy when you’re about to invest. You can always send a message in the contact page for any more inquiries.

Can I invest in more than one fund?

Yes, you may open multiple mutual funds. For your convenience, see if you can do so by dealing with only one investment company. In that way, transactions can be done in one go.

Are all mutual funds the same?

No, they’re not. They differ in many aspects including the securities it holds, initial investment, additional investment, fees, goals, and benchmarks.

Does my mutual fund mature?

There is actually no maturity involved. You can go in and get out any time you want. Note though that fees may be charged when you redeem shares within the holding period. It’s convenient in the way that there is no contract involved.

How do I know where it is invested?

You can always reach out to the company. The portfolio can also be viewed on their website. Upon starting, brochures, form, and other files will be presented to you describing the assets the fund contains.

At what price can the mutual fund shares be purchased?

The price are determined by the NAVPS or net asset value per share. It is computed by the value of all assets minus debts, and then divided by the number of all issued shares.

When is UITF NAVPS calculated?

NAVPS is usually computed at the end of each trading day except weekends and holidays. So when you invest, the number shares that will be issued to you would depend on NAVPS of the previous day.

How do I redeem my shares?

You can redeem your shares by requesting that you would want to get your money back. Check with the company on the procedures by either contacting them online or talk to a rep.

How much do I get when the investment is redeemed?

It depends on the number of shares you have and the NAVPS at the time of your redemption. Simply multiply the shares with the NAVPS, and you should have an idea on how much you’re going to receive.

How do I compute my mutual fund earnings?

To check whether you’ve gained or loss, you need to know the NAVPS at the time the shares were purchased and the NAVPS at which they were redeemed. The formula is (NAVPS redeemed – NAVPS purchased) ÷ number of shares.

Are mutual funds guaranteed or insured?

No, they are not guaranteed and they are also not insured. They are not deposit products where interest earned can be predictable. Nor are they insured by the Philippine Deposit Insurance Corporation. Investors get to receive all gains and losses.

Can I lose money in mutual fund?

Yes. As mentioned above, the income that you get is not guaranteed. It depends on the market that you’ve invested, so there is risk of capital loss. The fund manager is responsible in maximizing returns and mitigating the risks. S/He can be removed by the shareholders in the case where performance is considered poor.

Can I tell the fund manager what to buy or sell?

No. The fund manager is going to follow the objective laid out in the prospectus. In return, they are compensated through the management fees.

Is my money safe in mutual funds? Will the fund manager run away with my money?

Mutual funds are highly regulated by the government. They are also established with protecting the interest of investors in mind. The fund manager does not have direct access on the assets, which are held by a custodian bank. The custodian bank is forbidden from making decisions on these assets.

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14 thoughts on “Philippine mutual fund for beginners: How to start investing”

  1. thank you so much for this free education of mutual fund . very helpful guide to start investing or saving money for future use.

  2. Hi, I just want to say thank you for such a great blog. It’s helping me understand things in the simplest way possible. Please keep up the good work! 🙂

    I am so glad I found this site; I am actually endorsing this to my friends. Stay safe and always take care.

  3. Thank you for this article. I am new in investing and this very helpful for beginners like me. Answered mostly the questions I have in mind when it comes to investing.

  4. Where do they get the changes / fee?

    Is it from my principal investment?
    Or from the earnings of my principal investment. (interest / navps appreciation)
    Sample:
    i invested initial investment of 5,000.
    And the navps is 1 peso.
    And assuming the management fee & other charges were total to 2%..

    Then After a year,
    assuming the navps is 2pesos.
    Now, the question is;
    Do they get the 2% Fees from my principal investment of 5,000 or they will get it from the whole value of my navps which is 10,000?? Where do they get the fees?

    How about dividends? Do they reinvest and be added to my principal investment?

    1. Hi, Diony. You’re correct. The management fee is reflected in the net asset value. It is a percentage of whatever is the present value of the fund. So in your example, the 2% fee is going to be based on the NAVPS of 2 pesos. Second question: yes, dividends are reinvested to the fund.

  5. I started investing in mutual funds but I got confused in actively managed index funds and index fund.

    1) FMETF is a ETF that traded as a stock but a mutual fund?
    2) I’m using COL which is there’s no front-end fees for getting mutual fund shares. But I get a FMETF, the fees will be different?
    3) Does mutual fund has compounding?
    4) Does mutual fund earn daily, monthly, yearly or only the day when you sell your shares? I’m would like to ask for your assistance because I’m observing the NAVPS history, the difference was not that huge compared to stock prices.

    1. Hi, Seph.
      1. That’s correct. FMETF is a mutual fund, but instead of you opening an account with a mutual fund company you buy FMETF stocks directly from the exchange.
      2. Fees are different. In mutual funds, you have sales load, management fee and exit fee. In buying stocks, you’re charged with broker’s fee, tax, SSCP fee, and when you sell you’re charged with capital gains tax.
      3. The earnings from both stocks and mutual funds do not compound in a predictable manner like those found in savings account or time deposit. However, analysts usually use compounding to get an understanding on how a stock or a mutual fund perform over time.
      4. It does not earn predictably. It depends on the increase of the value on the assets that mutual fund owns.

  6. Hello,

    I am confused with the difference of money market fund and short term fund. Per BPI investment funds, they are separate and different funds. Which fund is invested to less than a year of investments? Also, can you explain further the capital gains tax and final withholding tax for mutual funds. From what I understand, investment gains are not subject to 20% final withholding tax so take home proceeds would be net of taxes, because the Fund is already charged 20% tax upon selling the securities?

    1. Hi, Sam. Money market funds are primarily invested in securities traded in money markets: bills, notes, LTNCDs etc. According to BPI, their Short Term Fund invests in these fixed-income securities too so that means it is a type of money market fun but with the specific purpose of exceeding the return of the 91-day Treasury bills. You may check their latest KIIDS or key investment and information disclosure PDF and you’ll see it under classification.

      The article is updated regarding tax treatments of MFs and UITFs. See this position on UITF PH website. For ordinary investors, no taxes are charged when redeeming the investment.

  7. Hi,
    Which website can I check and see the best performing funds YTD for all the mutual funds (equity fund) in the Philippines? Also, can a mutual fund or UITF allowed to invest in an Exchange Traded Fund and REIT?

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