Digital Reporter
Lucia Edna P. de Guzman
Looking for gifts for our parents (*cough* Father’s Day is just around the corner *cough*) can get more difficult as we get older—folded Oslo paper greeting cards with Crayola‑drawn hearts stop being cute after a while. But our parents have done so much for us, they’ve invested so much time and effort into molding us into upstanding citizens. Isn’t it time to invest in them too?
You know what would make a fun gift for parents? Funds. Not cold hard cash, there are still some parents who would take that as a blow to their pride. No, something that they could manage, and take a part in earning.
Enter exchange traded funds (ETF) and mutual funds options that allow you to buy shares that you can transfer to someone else.
Repeating their Mother’s Day, First Metro Securities offers ETF gift certificates for people who wish to invest as low as ₱2,500 in exchange traded funds managed by the securities brokerage arm of the Metrobank group. SparkUp called First Metro and exchange traded fund gift checks are also available upon request, though details on how to pay for and receive the gift check would vary depending on whether you or your chosen recipient already has an account with First Metro. Inquiries can be emailed to customerservice@firstmetrosec.com.ph.
On the other hand, Sun Life Financial has to offer its Prosperity Card which invests a fixed rate of ₱5,000 into a mutual fund that it manages. You can pay for the initial funds for that loved one online, but to get an actual card that you can put in your wallet, you would have to pick it up from a Sun Life office. The recipient will then have to register their own account on Sun Life using the funds from the card. Congratulations, they are now a proud owner of a share in a mutual fund.
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“It’s a gift that keeps on giving, because it’s a gift that can grow over time,” Sun Life chief marketing officer Mylene Lopa told SparkUp at the sidelines of a press conference last May 17. “With an investment, it will earn money and it will help the person who received it achieve whatever goals they have. It bears fruit.”
She added that insurance could also be used as a gift to parents, because it’s always good to be prepared in case of an emergency. The caveat? “The insured person has to be evaluated and the process is longer to apply for,” Ms. Lopa said. Because of the evaluation requirement, it’s almost impossible to surprise a person with the gift of insurance, unlike with ETF gift checks and mutual fund Prosperity Cards.
What’s the difference between the above two options—ETFs and mutual funds—other than the former being half the price of the latter?
First, let’s talk about how similar they are. Both ETFs and mutual funds take funds from different investors to invest into a certain group of securities.
Think of it as you and a bunch of people riding the same bus, on an adventure ride to what is hopefully a good destination. You and the other passengers are the investors, the driver is the fund manager, and the bus is the fund. All of you can individually upgrade your seats for a more comfortable ride—you can all add to your initial investments. You can also individually leave the bus and take your upgraded seat and all the memories you’ve had of your adventure with you—or take all your funds and leave if you think that the trip isn’t worth it or if you’ve enjoyed yourself enough. Should the bus take a wrong turn and sink into a bog, you and your fellow passengers are going to lose some funds. But the passenger who upgraded his seat will lose more than the passenger who decided he was going to take the entire trip with the seat that he started with. If the bus takes a right turn that leads to a glorious island paradise, the passenger who upgraded his seat can boast of having the most comfortable ride to the best place ever. As for the passenger who kept his basic seat, well, at least he got there.
The advantage to these funds is that you don’t have to learn how to drive to get to where you are. The disadvantage is that you don’t have a lot of control over your vehicle.
The difference lies in the path the bus will take, or what the funds invest in. ETFs have lower management fees because the stocks within the fund can only be switched around quarterly. So if part of the fund was invested in unprofitable stocks, all the investors will have to sit through that ride for three months. The ETF is listed in the stock exchange and can be expected to reflect the movement in the market, thus it’s easier to track.
Meanwhile, stocks within the mutual fund can be switched around by the fund manager at any time, culling the unprofitable from the profitable. Because that’s more work for him, management funds in a mutual fund tend to be higher. Unlike ETFs, mutual funds are not listed as stocks, which might make it more difficult to track. There are four types of mutual funds: money market funds, bond funds, balanced funds, and stock funds.
