How to Invest in Mutual Funds Philippines 2022 - The Thrifty Pinay

How to Invest in Mutual Funds Philippines 2022

How does one invest in Mutual Funds in the Philippines? If you’re looking for a beginner’s guide in Mutual Funds, this post is packed with all the things you should know so you don’t end up committing the same mistakes I did.

I have made a lot of mistakes in my life, one being with investing in Mutual Funds in the Philippines. The juvenile in me thought I knew it all, and so I talked with an agent and booked my first MF investment. Little did I know that my negligence in reading the prospectus and the fees would leave me to disappointment with my returns – moreover, disappointment with myself.

Well, I could’ve blamed the agent for not giving me a heads up, but clearly, it wasn’t her fault. Anyway, it serves me right for not reading pertinent docs before investing.

Believe it or not, investing in Mutual Funds in the Philippines is the simplest and easiest way you can invest in stocks. Instead of you doing all the studying and guesswork in investing with stocks, with Mutual Funds, you are leaving that task to a Fund Manager who is a professional in managing it.

You can treat it like a normal savings account but instead of leaving your money in the bank, your investments will be put to work. Talk about passive income!

How to Invest in Mutual funds in the Philippines 2022

1. Why should you invest in mutual funds in the Philippines?

  • Better potential returns and to have another stream of income. Also, to earn and gain profits, lots of it, if you put investments on Equity Funds.
  • Diversification since your money will be spread across a wide variety of portfolios of stocks, bonds, money markets and other funds, making it safer- in principle- compared to stock market investing.
  • You don’t need to actively monitor the market nor do you need financial expertise to manage your funds because these investments have professional fund managers who will do these technical tasks for you.
  • To beat yearly inflation as we all are aware that parking your money in a savings account ain’t enough. Prices rise up every now and then but people’s regular income barely increases.
  • Minimum Capital requirement which is only P5,000.00
  • These can aid you a very rewarding retirement by investing for long term.
  • Compound interest. In principle, the longer the time your money is invested in investment options like MF and UITF, the higher potential earnings for your money.

What is a Mutual Fund Manager in the Philippines?

So if there is a need to buy and sell stocks and bonds, who will trade it for us?

It’s the fund manager that does all that. Fund managers are professionals and experts in securities and they will do the trading in behalf of all the investors. In exchange for their expertise, we investors pay annual fees and other charges to cover for the operation of the fund. We’ll talk about those charges later.

Since you are in a mutual fund, you don’t have direct control on the trading. This means that the return of your investment solely depends on the fund manager’s selection and decision. The risks, gains and losses the fund will accumulate will be distributed proportionally to all investors.

2. How does investing in mutual funds work in the Philippines?

Instead of explaining it theoretically, I’ve decided to use another approach- that is by explaining it through a story:

Allen, Bert and Carl all want to invest in the stock market. But since they are too busy with their careers, they decided to pool their money and give it to Dong who will invest it in their behalf.

The three friends put their trust and confidence in Dong because he is an investment banker. Dong, thus becomes the mutual fund manager.

Allen gave P30,000.00, Bert gave P20,000.00, and Carl gave P10,000.00. Total money invested is P60,000.00 and which is now with Dong is called the Mutual Fund.

Though Dong may be their friend, he won’t be doing the investing for free. He then charges his three friends a management fee of 1% per year. With that, Allen has to pay P300, Bert has to pay P200 and Carl P100.

Now Dong would like to invest in Company X which offers P10 per share. With P60,000.00, Dong will buy these shares and will be giving his friends each a certificate with the corresponding shares of Company X:

Allen 3,000 shares; Bert 2,000 shares; Carl 1,000shares

After a year, the three friends decided to redeem their shares. Fortunately, the share price of Company X rose to P20 per share. The value of the investment of the three friends are as follows:

Allen: P3,000 x P20= P60,000

Bert: P2,000 x P20= P40,000

Carl: P1,000 x P20= P20,000

But Dong, being the smart investment banker that he is, charges each friend a redemption fee of 5%. So again, the three friends will have to pay Dong the ff:

Allen P60,000 x 5% = P3,000

Bert P40,000 x 5% = P2,000

Carl P20,000 x 5% = P1,000

So now, Allen will receive P57,000; Bert P38,000, and Carl P19,000. All three friends are happy because they gained with their investments.

Now, what if the share price dropped to P9 per share? Then all three friends will incur a loss because the original price of the share is P10.

The example above is just a simple analogy of how mutual funds work. In reality, there are thousands of people who invest in mutual funds and not just 3.

The entity that collects the pooled funds is the mutual fund company. And the mutual fund manager (Dong, in the example above) is a professional, the one you can trust with your investment. But of course, he/she won’t be doing that for free, hence the Management Fee which is an fee paid to the mutual fund company for the maintenance of your investment. This fee is applicable to all investments.

The price per share mentioned in out example are actually the NAVPS or Net Asset Value Per Share which can only be determined at the end of the day. Your returns will solely be based on the NAVPS on the day you redeem your investment.

Mutual Funds do the buying and selling only on the closing price of the day. This means you can’t really control how your money will turn out.

Furthermore, mutual Funds do not guarantee fixed return.

To get up-to-date information, check the NAVPS performance data on the Philippine Investment Funds Association (PIFA) website. The PIFA is the industry association of mutual funds companies in the Philippines. If you wish to know if the MF you are eyeing is legitimate or not, this is where you can check it.

3. What are the fees/charges when investing in Mutal Funds in the Philippines?

When I invested in a MF, my mistake was that I did not familiarize myself with the prospectus and its corresponding fees. Do not make the same mistake I did.

Investors will typically have to pay:

  1. Sales load fees such as front-end loads and back-end loads
  2. Periodic fees such as management fees and account fees
  3. Transaction fees such as purchase fees and redemption fees

A few reminders:

  • Not all funds ask for these fees
  • Read your fund prospectus carefully and familiarize yourself with the kinds of fees you have to pay
  • Front-end load rates depend on how much you will invest. The higher the investment, the lower the rate.
  • Back-end load rates depend on how long you will invest. The longer you redeem, the lower the rate.
  • Index funds have lower management fees.

Example of Front -end load rate:

Initial investment: ₱5,000

Front-end/Sales load: 2%

Sales load amount: ₱5,000 x 2% = ₱100

Actual invested amount: ₱5,000 – ₱100 = ₱4,900

Take note: These fees ,though immaterial (small amount) will be deducted from your returns, eventually making your returns smaller. So always, always,always check your prospectus or better yet make things clear with your agent the regarding fees.

4. Do I have to pay taxes from the income?

Yes- but not directly, so don’t worry. The mutual fund company will file the withholding taxes for you. The taxes are already incorporated in the navps, hence the word “NET”.

5. What are the Best Mutual Funds in the Philippines 2022

There are a number of mutual funds available in the Philippines. Each mutual fund are further characterized based on the following:

  • Objective or why you are investing
  • Composition or where it invests
  • Investment Horizon or how long it would be invested for maximized returns
  • Risk appetite or how much risk can you take

Equity Funds

An Equity Fund, also known as a stock fund, invests in selected stocks and equity securities. This type of MF is considered to have the highest risk (relative to other MF types) but with the potential for the biggest returns in the long term (5 years or more) since it invests primarily in stocks and equities.

Bond Funds

This type of MF has a typical mix of fixed-income investments like treasury notes, government securities, and commercial papers.

Investors who opt for Bond Funds are in it for the lesser volatility (vs. other MF types) while still providing potential for capital growth and safeguarding their money against inflation.

Money Market Funds

This type of mutual fund invests primarily in short-term debt securities like time deposits and corporate bonds. It’s deemed to be the safest MF type but also generates the least amount of return for your money.

This is recommended for people looking to invest their money in the short term.

Balanced Fund

This type of mutual fund features a typical portfolio of stocks, bonds, and/or money market funds. It’s deemed as the fund type of choice for investors with an appetite for moderate risk.

6. How much profit would you earn in Mutual Funds in the Philippines?

It depends upon the fund you’ve chosen to invest in, the period or how long you’ve invested it, and the performance of the fund.  Some gain higher returns and earn thousands while some gain millions. Apparently, the higher the amount you invested and the longer it is invested, the higher the return or profit. So I recommend investing in long term.

7. Where can I use my mutual fund investment?

You can invest in MF for your long-term financial goals. As the risks involved when it comes to investing in a mutual fund is lower compared to direct stock investment but higher than a normal savings account. Use it as your :

  • retirement fund
  • education fund of your kids
  • future house and lot fund.
  • Diversification, if you have existing investments already.

8. How to Start Investing in Mutual Funds in the Philippines

It’s easy to set up a mutual fund account. Here are the usual steps required.

  1. Visit the MF company’s website and click on its registration Page.
  2. Answer Questions regarding your risk profile, FATCA, and the like.
  3. Download the required forms and documents.
  4. Submit all requirements by visiting their office or sending it via courier.
  5. Fund your account once you receive confirmation/statement of account arrives.

Once you have an account, buying shares of mutual funds can be done through the bank or via in-person visit at the nearest MF branch.

For convenience, most investors enroll their MF accounts in their bank’s online banking system which allows them a hassle-free transfer of money for funding their Mutual fund.

9. How to Invest in Mutual Funds In the Philippines Online

If you’re a person like me who hates long lines and going to crowded places just to get your transactions done, then you can try to invest in mutual funds online via SeedBox.

Seedbox is an online investment platform offered by ATR Asset Management (ATRAM).

It is a big help for beginner investors who need help identifying a portfolio that match their investment goals.

And by making investment convenient and affordable, Seedbox helps newbies get into the habit of investing regularly.

One thing I also like about Seedbox is its goal planner, perfect for newbies.

10. Are Mutual Funds Insured by the PDIC?

Since this is not a deposit or savings account, your funds are NOT insured in the PDIC (Philippine Deposit Ins Corporation). Knowing that will lead you to this next question:

11. What happens to my investments if the Mutual Fund company closes?

Suffice to say, you can bid goodbye to your investments. That is why you should only invest in reputable MF companies.

But hey! Don’t let that thought stop you from investing. All investment vehicles are associated with risks and that’s normal.

You may not have that insurance in having a mutual fund yet you could maximize your earnings more likely since mutual fund managers are experts and are equipped in executing the best strategies to make the fund grow continuously and flexible.

12. What happens to my investments in mutual funds if I die?

As a deceased investor, your shares and its final value will be part of your estate. Your shares will be distributed to your heirs. The gains when investing in a mutual fund is exempted from tax but, you still need to pay estate tax based on your acquired assets.

13. Mutual Funds VS UITFs, what’s the difference?

Similar to MFs, UITFS or Unit Investment Trust Funds are pooled funds. In principle, it works a lot like Mutual Funds. But instead of a Mutual Fund company, your money is managed by a bank.

If you are eager to learn more about UITFS, here is my beginner’s guide to help you understand it more:

Zoom in the table below to know the basic differences:

Zoom in pic to view differences

Moreover, here are other differences you can take into consideration:

  • MF: Taxes are not applied in your capital gains.
  • UITF: Capital gains are subject to 20% withholding tax (case-to-case basis)
  • MF: you may have the potential for dividends and shareholder rights
  • UITF: Owning units does not make you a shareholder (no potential dividends and shareholder rights)
  • MF: charge Entry and Management fees.
  • UITF: No Entry fees, lesser Management fees

Final thoughts

I hope this “How to invest in Mutual Funds Philippines” guide has helped you get that deeper understanding of Mutual Funds.

Remember, before you get your feet wet in the world of mutual fund investing, know the Top 10 Things to do before Investing.

How to Invest in Mutual Funds Philippines 2022

By Ameena Rey-Franc

Recognized as one of the Top Finance Blogs in the PH. Ameena Rey-Franc (founder of TTP) is a former Banker and BS Accountancy graduate turned Blogger, Keynote Speaker, and entrepreneur. Currently an RFP delegate, she is also the Author of a book about Financial Resilience and has held seminars for reputable companies like GrabFoodPH, Pru Life UK, VISA, JPMorgan Chase& Co., Paypal, Fundline, Moneymax, and many more. The Thrifty Pinay's mission is to empower women to LEARN, EARN, and be FINANCIALLY-INDEPENDENT no matter what life stage they are in.