Mutual Funds for beginners

I am looking to invest in mutual funds(MF). After years of witnessing my money getting defeated by inflation, I decide to put a stop to it. I choose mutual funds because I haven't studied in detail stocks yet. Knowing that the fund manager will do the investing and looking-after-my-money for me, I opted for mutual funds. I wouldn't want to get bogged down day and night looking to see how the stocks are doing so the stock market, for the moment, is beyond me. It's exasperating just thinking about that daily monitoring scenario. Again, I couldn't stress anymore why I choose mutual funds.

Some things I learned

1. Go for Balanced Fund with a little of your money on Equity Fund. They offer the highest yield. All the other products are just there to appease the scaredy investors.

Money Market, Bond Funds, GS Funds...those are practically almost regular banking deposit accounts in terms of interest. I am not saying you should totally disregard this conservative earning MF group. In fact they offer a good vehicle to temporarily park your Balanced and Equity MF investments when the economy is going sour.

In my case, I also have a large share of my money invested on T-Bills, Time Deposits, and SDAs that earn pretty much the same as these low earning but steady MF vehicles that it wouldn't make much sense to invest in them cause I would jus tbe practically renaming my Bank Accounts as "Mutual Funds".


2. Sales load, sales load, sales load. Look for mutual funds that have minimal or no sales load. Sales load is the commission that the mutual fund agents get for representing you or for going in between you and the mutual fund investment group.
Primarily, the agents job is to facilitate your placements. They also do other duties like informing you of the current status of the market and giving you advice on where you may want to park your money should the investing climate might be bearish as opposed to bullish. Agents are to Mutual Funds what Brokers are to the Stock Market.

3. Learn Peso Cost Averaging. Don't be intimidated by the financial terms that may spook you away from investing. Peso Cost Averaging is just a fancy name given to how, in the long run, you would see some significant gains if you keep putting in money to your mutual fund regularly. Volatility in MF investing is a given. Almost always, you end up gaining in the long run say around 5 years. Instead of paying one lump sum and not touching your money there until after 5 years, another option is to invest regularly in small deferred amounts. In this way the number of units you purchased have been spread over the period when they are purchased cheap or the times when they are purchased high. Averaging these smaller investments spread over time, you would almost always end up gaining without being stuck to paying for all your units in a fixed amount like you would when you subscribe to a one time payment.

4. Don't be rattled when the NAVPS goes low. NAVPS or Net Asset Value Per Share is the cost for a single MF unit. Say if the NAVPS is 2 and you invested 10,000 PhP, the number of units you effectively have are 10,000PhP divided by 2 or 5000 units(this assumes that you have zero sales load). You hear stories of disgruntled MF investors saying they lost a huge chunk of their principal in MF. Well they did so because the fluctuations spooked them like crazy and they withdrew their money prematurely and in such instances you are certain to suffer losses. MF are investments that are meant to stay there for medium to long term. 5 years is the magic number. To realise a significant growth, one should let his/her money stay there for 5 years before redeeming.

That's why ideally, the money invested in MF are excess/spare money. Don't ever try to invest your hard earned dough thinking that in 1 year you could get to pay for your child's college tuition based on the Year on Year data of the previous year.