Mutual Funds, the humble investment

mutual funds in  a jar of coinsMutual Funds started as the Eendragt Maakt Magt, translates to “unity creates strength” in The Netherlands by a Dutch merchant named Adriaan van Ketwich dating all the way back to 1774.  In which in 1822, King William I have also claimed that he opened the first formal mutual fund.

A mutual fund is a basket of money collected from different people, either an individual or a corporation, managed by a professional fund manager invested in stocks, bonds and money market securities. The idea of mutual funds is the strength of numbers it poses. Relatively, in the Philippines, even for as small as P5, 000 you can open a mutual fund.

There are actually two ways you can earn from mutual funds. One is through the income earned from dividends on stocks or interest on bonds and through capital gains when the fund’s Net Asset Value per share (NAVPS) is bigger than the purchase price when sold.

Advantages of Mutual Funds

Simple. You just have to find a provider and fill-out some forms and invest as low as P5, 000. And when you want them out of the market, liquidating them is easy.

Better. If you are not a fan of putting your money in a savings acount, Mutual Fund is for you because your money will grow bigger if put in this for of Investment. Point of caution though that there are no guaranteed returns.

Fund Manager. This is the exact equivalent of letting your money work for you because you have someone trading for you and is a professional at what he do. So if you are really new to investing and want a dip on the investment pool, mutual funds are a great way to start.

Diverse.  In theory, a mutual fund is a basket full of ingredients. And you choose how you want these ingredients get cooked by your chef, the fund manager. But then again, you have to wait for your desired results.

Disadvantages of Mutual Funds

Costs. Since you are getting some professional services (admin fees) there is some costs involved like processing fee and exit fees. Usually this ranges from 1-5% of the money you put in. And since getting in to the Mutual Fund game is easy and affordable, when the fund is performing well and a lot of money comes in. Normally, fund managers would have a hard time where to put the money.

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