Why You Should Invest in Mutual Funds

by Gily Tenorio on March 8, 2012

in Mutual Funds

In my previous posts, I discussed there the primary benefits that you can get from investing in mutual funds and I also made a post why it is the best investment for OFW. But now, I would like to make a post why you should invest in mutual funds in more personal way based on my experience.

Perhaps you already know what mutual fund is. But for those people who are starting to study how mutual fund works, I want to give you a brief introduction about mutual fund.

Mutual fund, from the word itself, is a fund or pool of funds coming from individual investors and companies to create a single and mutual (cooperative) fund. Then, this fund (bigger than funds from individual investor) will be invested in stocks, high-yield savings account, government bonds, treasury bills, and other types of legal investments.

The fund will be managed by a professional manager chosen by the investment company you applied for an account. He is responsible for picking and selling of the stocks or other investments included in the prospectus.

It is just a short introduction about mutual fund. If you want to learn more about how it works, how to invest, how to choose the best mutual funds, and other things you want to know, you can visit this link.

So, let’s go back to the question: Why you should invest in mutual funds? Below are some of the answers I have in mind to give you an idea if it is the right investment for you.

1. You don’t have extra time to study and invest in the stock market

Investing in mutual funds is like investing in the stock market indirectly. This is only applicable if you have an equity or balanced fund. Maybe you already know that equity MF invests the fund 100% in stocks while balanced-fund invests only some portion of its money in stocks and other portions on bonds, treasury bills, savings account and others.

If you choose to invest in MF, you don’t have to worry about which stocks to buy since it is the task of the fund manager. The only thing you need to do is open a MF account and then deposit or add money to your account so you can buy a certain number of shares you want. After that, you will not do anything, you just wait until the NAVPS increase as the time goes by.

2. You have small amount of money for investing

Other investments like stocks or starting a business would require a large amount of money before you could start. However, some investments will only need small capital to start with like mutual funds. Actually, you can open or apply for an account for as low as P5,000. That’s a good capital to start with and easier to raise. After having an account, you could add and buy more MF as little as P1,000.

mutual funds

For employees and OFW like me, MF is a good start when you want to try investing your money aside from business or other money-making opportunities. Indeed, it is one of the best investment for OFW because it requires small capital, little knowledge and effort.

3. You want diversification

If you don’t want to put all your eggs in one basket, MF is one of the best options to do so especially if you want to buy several stocks in one time. In this case, you have to find out what equity fund is investing in the companies you like. Normally, you will know this thing through the prospectus of the fund that you can download in their website so you should get one to give you the information you need.

In addition, if you like to invest your money in a lower risk investment, you can do it by buying a fixed-income mutual fund rather the more aggressive and high-risk, equity fund.

4. You don’t want to always monitor your investment

One good thing about investing in mutual funds is that you don’t have to monitor regularly your investments unless you are planning to sell your shares. But, if you are planning for a long-term investment, you will not be force to look always your portfolio.

It is better to invest in longer years than one or two years. If you are saving money for retirement, putting some portion in mutual fund will be a better idea than all of your cash is sleeping in the bank.

5. You want your money to work more for you

The return or profit that you will get from mutual fund is far way better than regular savings account and time deposit. But, please be reminded that there is no guarantee that you earn in MF and it is not insured by PDIC unlike deposit accounts.

It is the reason, you should invest and hold it for a long time, maybe more than 5 years. In that way, you will be sure that your money will get its maximum potential earnings. The idea here is that your earning will be in average, some years there is high profit, some years there is low profit.

Investing in mutual fund can offer many benefits and potential earnings for the investor so don’t miss this opportunity. You don’t need a large amount of money to begin investing and even without knowledge about investment, you are very eligible to do so.

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