Category Archives: Mutual Funds

My Mutual Fund Notes

mutual-fund-notesI admit that the first time Mutual Fund was introduced to me three years ago, I did not do my homework.  All I know is that it’s a good investment and I’m aware that I could potentially lose the money I invested in. But even though I know the things I learned now, I would still do the same thing. I know I made the right decision and I’m just glad I did.

Before you continue reading my notes, I  recommend that you read the previous articles I wrote about Mutual Funds below. They may not be comprehensive but I believe these articles tapped important details on how you can get started on Mutual Funds.

Again, I’m no guru in this field and these are so far the things I learned that have changed my insights and open my mind about Mutual Funds.

1. Mutual Funds don’t have insurance. Unlike bank products such as savings and time deposits, mutual funds are not covered by the PDIC. It doesn’t give guaranteed return and you can even lose money along the way. However, it has much higher potential to earn than a regular savings offered by the bank. Take note – higher return means higher risk.

2. Your money doesn’t grow over night. Depending on the kind of mutual fund you choose, the money you invested in Mutual Funds should be something that you won’t need in the next five years or willing to lose. So it’s always a pre-requisite to build your emergency fund and have separate high interest earning savings account first in case of emergency.

3. Set a goal and know how to diversify.  The earning of your investment does not roll over so it it important that you set a goal and diversify to maximize the earning potential of your profit. See this post about Diversification for Beginners.

4. NAVPS. According to Investopedia,  NAVPS is the value of a single unit, or share, of a fund. This figure for a mutual fund is the price at which shares are bought and sold. Because exchange-traded and closed-end funds are listed and traded as stocks, which are subject to market forces, their NAVPS and buying/selling prices per share can be divergent.”  

Depending on your goals and buying/selling strategy, it’s always good to know the NAVPS on a daily basis to keep you updated.

5. Know the amount of risk you can tolerate. I’m very conservative when it comes to money management decision that’s why I started with Balanced Mutual Fund. I don’t want to give it all out even though those are money that I’m willing to lose. I just don’t want this financial decision rob my peaceful sleep. If you do not have such risk-taking ability, it is always better to stick to funds with low-risks involved.

If you are an expert in this field and you find something wrong in my notes, please contact me ASAP so I can immediately correct them. In case you have something to add that is worth sharing, please leave it as comments below.

How to Compute Your Mutual Fund Earnings

If you just started your investment or planning to start investing on Mutual Funds and you want to know how much your money can earn, here’s a simple computation that will help you realize how valuable time is in your investment.

Let’s meet the two financial terms you should know.
1. NAVPS (Net Asset Value per Share):  The price of shares that changes on a daily basis. This figure represents the market values of the investment assets the mutual fund company owns.

2. Number of Shares: This can be determined based on the amount you invested in divided by the price of NAVPS
Amount of investment / NAVPS today = Number of shares you bought.

Example:  You have an initial investment of Php 10,000.00

1. Today’s NAVPS  is Php 3.6056

navps-sun-life-may-2014

Image extracted from SunLife website

2.  Calculate the number of Shares:

Php 10,000 / Php 3.6056 = 2,773 is your number of shares.

Let’s assume at the end of the year, the *NAVPS’ price climbs to Php 4.6200

Year End NAVPS: P4.6200
Current NAVPS: P3.6056
Difference in NAVPS prices: P4.6200 – P3.6056 = P1.0144
Number of Shares Owned = 2,773
**Profit = P1.0144 x 2,773 = P2,812.93

Of course, the *NAVPS we project before the year ends is very ideal but can happen. So if you have Php 10,000 that you are planning to add into your high interest savings for a longer term, think again. With this simple computation, you can easily see how you can maximize the earnings of your money.

Let’s apply this to my self. If I had an initial investment of Php100,000.00 when I started on April 6, 2011.

Apr 06, 2011 NAVPS: 2.6781
May 26, 2014 NAVPS: 3.6056
Difference in NAVPS prices: P3.6056 – P2.6781 = P0.9275
Number of Shares: 37,340
**Profit: Php 0.9275 x 37,340 = Php 34,632.85

This is why you need to do a thorough research before you let go of your hard earned money. Do you invest your money in mutual funds or look for best bank for high interest savings account? In the end it will depend on your financial goal.

Now all I can do is dream. But I already learned my lesson. =)

Now… ask yourself, can your money earn that from your savings account at the end of the year or just three years after?

*NAVPS is changing every day, it could have it’s high and low so it’s highly advisable that you keep your money for a long period of time.

**Profit – maybe subject for tax or fund manager fee of the mutual fund company you chose. Make sure that you know these stuff from the company that you want to invest in.

The Kind of Mutual Fund I Chose

There are several kinds of mutual funds but I won’t be tackling them here one by one. As I try to understand this new world I decided to get in, I would like us both to learn more about the best kind of mutual fund that will help us get started without risking a lot. For me, it’s Balanced Fund (others call it Hybrid or best of both worlds).

As mentioned in my previous post, entitled “What is Mutual Fund?“, I started my investment in Mutual Funds particularly Balanced Fund three years ago. But I had changed of plans which made me to stop adding more funds to my investment. My money with its income is still there of course but as some experts say, it could have been much bigger if I was able to fill it in regularly. The NAVPS at that time is just 2.6781. Now it’s 3.6127.

So what is a “Balanced Fund?” According to Sun Life’s website (my Fund Manager for this investment),

“Just as its name implies, the Prosperity Balanced Fund is the middle of Bonds and Equities — a mix of fixed income and larger growth-potential investments. Balanced Fund is traditionally the instrument used by investors who want to build wealth over time while seeking other investment avenues. Balanced funds are channels for diversification, too, as it provides the best of both worlds of mutual funds.

The Balanced Fund is for you if:

– You are ready to invest and currently looking at a mid-term investing horizon
– You are willing to take the risk but you are not ready to go all the way. The ‘Bond’ part of the Balanced Fund helps cushion the risks, should the stock market be fluctuating unfavorably.

I chose Balanced Fund because I’m not a risky person, at least for now. =)

Aside from the two factors stated above by Sun Life, here are 5 things that you should ask your self before investing to a Mutual Fund?
1. What is the goal of the fund?
2. What is the risk and how much you can take?
3. How is the fund performing?
4. How much is the initial investment and the fund manager fee?
5. Who manages the fund?

I was once told that in Mutual Funds, you can invest and forget. It will grow overtime especially if you choose to leave for a long period of time and fill it in regularly. The longer the term it stays, the higher the percentage that it will grow. However, if you want to monitor the flow of your investment, one thing you should look at is the ever changing Net Asset Value Per Share (NAVPS). Let’s learn more about NAVPS in another topic.

If you want to get started, all you need is a Php 5,000 initial investment. It’s just a sum of the 34 cups of Starbucks that you are willing to let go. Time is our friend when it comes to investing. Today, I’m so excited to fill in my investment again. When are you going to start?

What is Mutual Fund?

This video was posted two years ago and it explains (in Filipino language) what is a “mutual fund”. It also has examples that will help every Juan to easily understand and grasp how mutual fund works. Thank you for Pesos and Sense for this video.

I started doing Balanced Fund (a Sunlife product) three years ago but I was at halt for the last 1 1/2 years because my finances is so tight and I only got little to save. I was building my house back then.

I know it’s not a good excuse and I regret those times that I wasn’t able to fill in my investments. Nevertheless, it’s still earning up to this day. And I have a new house which is also an investment. Now, I’m coming back again to continue what I have started. And just like you, I’m back to Mutual Funds 101. Let’s start learning together.