It is very important to understand how mutual fund works so I will explain the details the simplest way I can.
Mutual fund is like a basket where you put your money in exchange of shares, which you can call as proof of investment. Please see the simple understanding of mutual funds:
- Everyone (the investors) can put their money in the basket or mutual fund.
- Now, a person or group of persons (fund manager/s) is managing the basket of pooled funds (money put into by numbers of investors), and
- Fund managers will decide on investing the money into different companies (based on their expertise and understanding of the market).
After you invested in the mutual fund, you will only take note of how much you have bought the shares at the time of buying (Puhunan mo per share) You call it NAVP or Net Asset Value per Share. This is your starting point of computing your gain or loss in the future.
When you buy a mutual fund, meron bang fees?
- Yes, there are fees associated to it, but these fees are very minimal.Sales Load or Entry Fees – they range from 0.25% to 3.50% depending on the amount you invested.
Tip: The higher the investment the lower the sales load or entry fees. Also the entry fees are cumulative, so if you will add investment it means investment amount is getting higher and sales load fees will be lower.
- Management Fees – this is the annual fee that the company charges against your fund. This is basically the fee that we pay for the experts for managing your money to be invested while you sit back and relax.
- Exit Fees – this range from 0.50% to 2% of the amount being withdrawn. But, this is only applicable if this is within the holding period.
Tip: To avoid this fee, make sure to withdraw your fund after the holding period.
What is holding period?
This is the period that your money should be intact to the mutual fund company, so they can maximize the investment strategy they put into.
Magkano naman kikitain ko sa Mutual fund?
We really can’t tell, kasi ang mutual fund ay directly invested to stocks listed in stock exchange or bonds issued by government or corporations which differs based on the market and result of the performance of the investment. The earnings are not fixed and rate returns are averaging from 6 to 18% but still depends sa market performance because your money is doing business.
Ibig sabihin I can still lose money in Mutual fund?
Yes, because if the market is down, you will have “paper loss”, meaning kung hindi mo naman withdraw ang funds mo, wala ka pang actual or realize loss. Same applies to your gain, wala ka pang actual or realize gain unless withdraw mo ang investment mo.
So we advise, that mutual fund is for long term purposes para your investment can help you manage the possible risk of loss. In addition, plan ahead, do peso cost averaging for you to minimize the risk.
What is peso cost averaging?
This is a method of investing, basically you invest fixed amount of money regularly.
Kung may mangyari sakin, panu na investments ko?
This will be form part of your estate (or pamana), mapupunta ito sa beneficiary that you elected upon account opening. Tandaan lamang, subject ito sa estate tax that needs to be paid to government before the beneficiaries can claim.
May TAX ba ang gain ko sa mutual fund? – Wala
With the above information, I hope Kabayan you are able to understand the basics of mutual fund. Ready na to invest?
PS. For your further reading on mutual fund: I am an OFW, can I invest in Mutual Fund,
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