By: Rich Juan, Poor Juan
Investing in Mutual Funds is simpler than most people think. We have created a quick guide to help you get started. The illustration above will also help.
Let's begin!
It starts by opening an account with your CIS (Certified Investment Solicitor) or mutual fund adviser. In Paramount, we call then FAAs (Fusion Accredited Agents). All you have to do is fill out some necessary forms and provide two (2) valid government IDs.
On the application form, you will also select which fund you will be using. There three main types of funds that people can choose from. They are Equity Funds, Bond Funds, and Balanced Funds. Quickly put, Equity Funds are shares of publicly-traded companies on the stock market. Bond Funds are shares of Bonds or corporate bonds and government securities traded, and Balanced funds are Funds containing a combination of equities and bonds. We will discuss these in detail in another article. Let's just say you chose an equity fund since this will be for long term investment.
These will then be submitted to process the application.
For the minimum required amount to open an account, we would just need Php 5,000.00 only. You will be provided with an account/folio number which you will use when you deposit the account at the bank. In this case, we can go to the nearest Metrobank (since we will be using FirstMetro Asset Management) as our Mutual Fund provider.
What happens to the money when we deposit the amount?
The mutual fund company's fund manager will then pool the monies and purchase shares of the fund accordingly. On your account, you will then have the number of shares of the fund based on the prevailing NAVPS (Net Asset Value Per Share) at the time of the purchase.
Congratulations! You now have your mutual fund investment. You will receive your statement of account on your email and mailing address which contains the details of your account.
The fund manager will then manage the fund with the objective of getting the best yield (fund value appreciation). Here's a quick example :
Assuming that there is no sales load (using Fusion with Paramount and FAMI). Say when you put in Php 5,000.00 in the fund and the current NAVPS is Php 1.00/ share. Therefore, you bought 5,000 shares.
Entry - Php 5,000.00
NAVPS - Php 1.00
No. of shares bought - 5,000 shares
After a time, the NAVPS grew to Php 1.75/ share. With the same number of shares but higher value, you now have Php 8,750 worth of shares.
Current NAVPS - Php 1.75
No. of shares - Php 5,000 shares
Current Value - Php 8,750
Current Value = No. of shares x Current Net Asset Value per Share
Php 8,570 = (5,000 shares) x (Php 1.75)
This would mean that IF you choose to liquidate/withdraw your investment with 5,000 shares, you will receive Php 8,570! That's Php 3,750 more than what you put in. But if you don't, you still have the same number of shares. IF the value (NAVPS) goes down but you do not liquidate/withdraw, you do not lose any money since you still have the same number of shares. Just wait for the value to go back up again.
Do note that you can have an additional investment of Php 1,000.00 anytime.
Just remember, with Mutual Funds, we invest. This is different from trading. So you don't have to watch the value all day. Just save, invest consistently and wait for the time that you set to use it.
Now that's growing your money in mutual funds.
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