Investing in mutual fund has long been recognized as one of the best ways to make one’s money grow. Indeed, according to the Philippine Investment Fund Association (PIFA), which fosters the growth of the mutual fund industry, these funds offer a combination of benefits other investment instruments cannot exactly match.
To begin with, one need not cough up tons of cash to get into the mutual fund game. Most mutual funds in the country, PIFA says, require a minimum initial investment that probably won’t make much of a dent in one’s savings — P5,000 — and minimum additional investments of P10,000. These amounts are way smaller than the amounts one has to spend to invest in other instruments.
“The minimum investment amounts for Treasury Bills and commercial paper, for instance, range from P100,000 to P1 million depending on the bank or investment house you are dealing with. This also holds true for stocks because while an investor may be able to buy one “lot” (shares are sold in board lots of 10 to 1 million shares depending on the price at which these shares are traded) for as low as P1,000 to P5,000, he may not find a stockbroker who will service his account because they prefer to deal with high net worth individuals (rich people in layman’s terms) or at least with people who have substantially more than just P5,000.00 to invest,” PIFA explains.
Imagine the convenience of not having to micromanage the investments on one’s own. “One of the main attractions of mutual funds is that it affords its investors, particularly the small ones, the services of full-time professional managers whose job is to analyze the various investment products available in the market and select those that would give the best possible returns to the fund and its shareholders,” PIFA says.
Investing in mutual fund allows one to achieve instant diversification because, the association points out, the fund is usually invested in a wide array of securities. Diversification — reducing risks by holding several securities — is a very important investing principle.
This alone should perhaps convince people to invest in mutual fund: the potential of reaping high returns. “Because a mutual fund is managed as a single portfolio, it is able to take advantage of certain economies of scale. For instance, with its millions under management, it can negotiate for lower stockbrokerage fees or command higher interest rates on fixed-income investments,” PIFA says. And though making direct investments can also yield big returns, the association says that it’s the investment advisor who makes the difference because very few individual investors can rival the experience and skills of full-time professional fund managers.
Converting investments into cash shouldn’t be difficult. “Other investment products require investors to find a buyer so that he can liquidate his investment. That is not the case with mutual fund shares because the fund itself stands ready to buy back these shares at the prevailing Net Asset Value Per Share,” PIFA says.
Finally, one’s money is safe. The Securities and Exchange Commission (SEC) regulate mutual funds, and the investment companies offering these funds are prohibited from investing in particular investment products and engaging in certain transactions and are supposed to submit regular reports to the SEC and their shareholders, PIFA says. All of the fund’s assets, PIFA adds, must be held by a custodian bank for safekeeping.
