A Byte of my 2.2-lb Brain

Just sharing stuff…

Mutual Funds

“Originally, mutual funds were heralded as a way for the little guy to get a piece of the market.” This is what I usually tell my friends. If you want to have equity exposure (which you should) and yet do not want to go mental with all those stock charts and disclosures, I strongly urge investing in mutual funds. The mutual fund managers (like Sir Gus) do the thinking and strategizing for you. Not bad. And almost definitely, for the long-term horizon, investing in mutuals is better than just parking your cash in your SA or putting it in Time Deposit (TD), especially if you’ve picked the right program for you.

Of course, just like any other investment vehicle out there, there are the pros and cons; and, here’s what Investopedia has outlined for us:

Advantages of Mutual Funds
Professional Management – The primary advantage of funds is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolios. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.

Diversification – By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.

Economies of Scale – Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions.

Liquidity – Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time.

Disadvantages of Mutual Funds
Professional Management – Many investors debate whether or not the professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still gets paid.

Dilution – It’s possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don’t make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

If you don’t think you will have the time and, well, spunk to start learning and trading stocks, I strongly urge you to invest in mutual funds in the Philippines instead. If you must know, the Philippine market has been tagged as an emerging market (by Dow Jones, S&P, MSCI, FTSE, etc.). It would be wise for all of us to hitch a ride on its much anticipated rapid economic growth, as early as now.

Now, the next question is, which fund in the Philippines should you invest in? As a first step, let me enumerate which ones outperformed most of their compeers in 2011.

Top three equity mutual funds

  • Philequity PSE n Index Fund Inc. at 6.67-percent year-to-date (YTD) return
  • Philequity Fund Inc. at 5.28-percent YTD return
  • First Metro Save and Learn Equity Fund Inc. at 4.68-percent YTD return

Top three balanced mutual funds

  • Optima Balanced Fund Inc. at 5.16-percent YTD return
  • First Metro Save and Learn Balanced Fund Inc. at 3.26-percent YTD return
  • NCM Mutual Fund of the Philippines, Inc. at 1.99-percent YTD return

Top three bond mutual funds

  • Ekklesia Mutual Fund Inc. at 8.21-percent YTD return
  • First Metro Save and Learn Fixed Income Fund Inc. at 8.11-percent YTD return
  • Philequity Peso Bond Fund Inc. at 6.79-percent YTD return

If I were to invest my money in MF, I would definitely put it under First Metro’s Save and Learn Equity Fund Inc. and its Save and Learn Fixed Income Fund Inc. Aside from the fact that they’ve been consistently topping the rankings, I have faith and confidence in its current fund manager. To know more about FAMI, please visit their website at http://www.fami.com.ph. No, I am in no way affiliated with them and this is not a paid advertisement. Anyway, Christopher Lim of the Business Mirror also has his own mutual funds picks.

Invest! 🙂

3 comments on “Mutual Funds

  1. Pingback: Time Deposit « A Fledgling Iskâ "Techno-Fundamentalist"

  2. Pingback: Where to begin: on Mutual Funds « A Fledgling Iskâ "Techno-Fundamentalist"

  3. Pingback: Mutual Funds as of Jan 02, 2012 « A Fledgling Iskâ "Techno-Fundamentalist"

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This entry was posted on February 12, 2012 by in Investing, Mutual Fund and tagged , .
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