Mutual Fund Investment Part 2

EVERYTHING YOU WANT TO KNOW ABOUT MUTUAL FUNDS
(but were afraid to ask)

1. IS MY PRINCIPAL SECURE IN MUTUAL FUNDS? CAN I LOSE MONEY?

Any investment involves risk. It means that you may lose some of your original capital. However, a mutual fund does several things to control, and contain that risk. (Professional Fund Managers & Diversification.

2. HOW MUCH IS THE INTEREST RATE? IS THIS GUARANTEED?

Mutual funds are not fixed- income investments and therefore do not pay out a fixed rate of return. The net asset value of a mutual fund fluctuates on a daily basis. Your individual rate of return depends on many factors. It is illegal to guarantee mutual fund returns.

3. WHY SHOULD I INVEST IN A MUTUAL FUND, IF EARNINGS FLUCTUATE ANYWAY?

There are many benefits from investing in mutual funds: Diversification, Affordability, Tax-Exempt, Professional Fund Management, Liquidity, Potentially Higher Returns etc...

4. THEY SAY MUTUAL FUNDS ARE NOT COVERED BY PDIC, DOES THIS MEAN IT IS SAFER TO INVEST IN A BANK.

Define: “safety”. Mutual Funds are investment companies registered with the SEC. They are not bank products and therefore are not covered by PDIC (P250K, DOSRI, NPLs issues)

5. WHAT HAPPENS IF THE FUND MANAGER/ RSA PERFORM POORLY OR GOES BANKRUPT?

The fund management company is separate from the mutual fund company (investments are diversified) the shareholders simply need to appoint a new fund manager.

6. WHAT PREVENTS THE FUND MANAGER/RSA FROM RUNNING AWAY WITH MY MONEY?

Mutual funds structure. The fund manager does not have any control over the physical assets except to make buying or selling decisions. Assets are held by a custodian bank and a transfer agent keeps records. RSA is just an intermediary.

7. WHAT HAPPENS TO MY INVESTMENT IF I DIE? WILL THERE BE TAXES?

Your shares in the mutual fund will form part of your estate and will be distributed to your heirs (immediate family members) accordingly. We encourage joint accounts.

8. HOW DO MUTUAL FUNDS EARN? DOES THIS AFFECT INVESTOR EARNINGS?

Management fees. Ranging from 1.5 – 3% of total assets. Amortized daily.

9. ARE MUTUAL FUND GAINS TAXABLE?

No. Mutual fund gains are exempted from taxes based on CTRP. This was done to promote long-term savings in the country. PERA Bill.

10. HOW COME MUTUAL FUNDS CHARGE ENTRY/EXIT FEES, UNLIKE IN THE BANKS?

Entry fees are fixed fees for commissions and some transaction fees. Exit fees are there to discourage “short-term” investors from joining the fund.

11. KNOWING THAT COMMISSIONS ARE LOW, WHY DO WE STILL NEED TO INCLUDE MUTUAL FUNDS IN OUR PORTFOLIO?

You earn not just with outright commissions but with trail commissions as well. The bigger the base, the bigger your trail. Door opener, expand your product line & market plus added credibility.

12. WHAT IS THE BEST MUTUAL FUND PRODUCT?

Always ask client’s objectives, risk appetite and time horizon.
RSA recommends:
FIRST METRO SAVE & LEARN FIXED-INCOME FUND (for peso bond), PHILAM DOLLAR BOND FUND (for dollar bond) & PHILEQUITY FUND (for equity fund)

13. IS THERE A STRATEGY FOR MUTUAL FUND INVESTING?

You can never exactly time the market. Peso Cost Averaging. Post dated checks.

14. KNOWING THE DEMISE OF AIG, IS IT STILL OK TO SELL PHILAM MUTUAL FUNDS?

Philamlife remains to be the largest insurance co. with the strongest balance sheet in the industry. Consolidated assets of P170B and Rev = P36.7B Total consolidated investments are concentrated in Phil GS, corp. bonds, and blue chips. We do not have CDS in the country.

15. IF MUTUAL FUND GAINS CANNOT BE GUARANTEED, WHAT IS THE ASSURANCE THAT INVESTMENTS IN MUTUAL FUNDS WILL EARN?

Track record. Assurance lies in the investment instruments inside the portfolio (government securities, blue chip companies) Market cycles. Long-term nature. NAVPS.