This question is from one of the readers of this blog. Sometimes, I publishes article based on the question from visitors and readers. I don’t have much time to answer all questions and comments so I made a posts to help you know the answer.
Is Mutual Funds Insured by PDIC?
The quick answer for this question is No. PDIC or Philippine Deposit Insurance Corporation is a government-owned corporation that insured all deposits made by bank customers. The insurance coverage is only up to P500,000.
Mutual funds is not a deposit product, it is an investment product by an investment company so it is not insured or guaranteed by PDIC. Only deposit products from the bank is covered by PDIC. This includes savings account, checking account and time deposits to list some of the few.
Can you lose money from mutual funds?
The answer is Yes. No one can guarantee a positive profit or return from mutual fund (MF) investing, even the best mutual fund manager. However, you can minimize the risk of losing money by investing for a long-term, meaning, five years or more. In addition, to make things clearer, you will only lose money once you sell or redeem your mutual funds, so you should wait until your MF can give you a good profit to avoid losing money from MF.
The fact that MF is not guaranteed by PDIC should not scare you to invest in it. I tell you, you also pay the price of guarantee for you deposits through the very small interest given by the bank. Since a deposit has an insurance, all of the banks will only give a maximum of 0.5% interest per year compared to the double-digit return from most of the mutual funds in the Philippines.
However, if you really want a guarantee and peace of mind, you could invest your money in time deposits which can give higher interest than the normal savings account. As I said earlier, you will pay the guarantee of your money even though you are not aware of it. You could even lose money from time deposit because of inflation. To learn more about this, visit this post.
Mutual Fund is Average Risk
Mutual funds are invested in stocks, bonds or other government securities and papers so the return cannot be guaranteed because no one can predict or control the financial market of the world or a country. However, the risk is minimized by careful and systematic method of investing by professional fund managers with a long year of experience in investing and finance. In addition, if you want to have the least risk of losing money, you could invest in fixed-income mutual fund. I also invested in this type because it is the least risky among the other kinds of MF.