Investing in mutual funds provides a variety of benefits. These include higher income potential, diversification of investments, professional fund management, and low capital requirement. To better understand mutual funds, let’s talk about some more details that a new investor may find helpful.
Types of Mutual FundsThere are several types of mutual funds depending on what types of financial securities the funds are composed of.
- Money Market Funds are funds invested in fixed-income securities which have short-term life-span. This means these securities mature in a year or less.
- Equity Funds are funds invested in a certain list of stocks in the Philippine Stock Exchange. It offers the highest potential for investment growth but also carries the highest risk due to the volatility of the stock market.
- Bond Funds are fund invested in fixed-income securities like bonds, commercial papers issued by corporations and treasury notes from the Philippine government.
- Balanced Funds are fund invested in bonds and equities. The level of risk and the return on investment for balanced funds may be considered to be between bond and equity funds.
Why Invest in a Mutual Fund?Nowadays, mutual funds are popularly known as a good way of building wealth through capital appreciation over time. Even investors with restricted or limited resources can take part and invest in a mutual fund. Aside from the fact that it is a very good alternative to increase an investment portfolio, investors need not worry how the investment fund will be managed. It will be handled by a professional fund manager.
Advantages of Mutual FundsMutual funds offer variety of benefits over other forms of investment.
- Professional Fund Management
- Requires Low Capital
- Diversification, Liquidity and Safety
Liquidity is the ability of the investment to be converted to cash immediately. Redemption of the profits must be processed within 7 banking days from the date that the request for a withdrawal is submitted. This level of liquidity is good considering the potential return on investment.
Mutual fund companies are registered and recognized by the Securities and Exchange Commission under the Investment Company Act and its implementing rules. Companies are required to submit reports to the SEC and to their shareholders. These government regulations are there to aid in the safety of the investments and the investors.
- Higher Returns Potential
Mutual funds are gaining popularity in the Philippines. Most investors prefer to choose a mutual fund type from a company they can trust and let the fund managers worry about the rest. It’s not a bad idea if you have the resources available.
Photo Credit: 401K 2012 (Creative Commons)