Mutual Funds 101

October 4, 2008

Mutual Fund is an investment company that pools the savings of many individual investors who share a common financial goal. These investors buy shares of a particular mutual fund that has a defined investment objectives and investment strategies. The price of a mutual fund share is its net asset (total assets less total liabilities) divided by the number of shares outstanding. This figure computed and published daily, is the mutual fund’s Net Asset Value Per Share (NAVPS).

(..whatever Yaya..)

I am thinking to invest again in Mutual Funds in Sun Life Equity Bond. I joined last year and pulled my money out after six months. Coz I needed badly the cash. With the market status today on the financial crisis, i do not notice any big deflation of NAVPS published daily in www.pse.com.ph (Mutual Fund Section).

It is good to joined when the NAVPS is low so that you can have more shares. I will find timing if NAVPS will go down slightly.

Having a diversified portfolio in Mutual Funds is letting your money grow with risk but without sweat. Letting the money work for you!  When I pulled out the funds I earned Php 1k+ on Php 10k worth of shares. Not bad at all.

Current Sun Life Properity Phil. Equity Fund goes high from Sept 25 to Oct 2. I am just waiting for the timing when good to invest again.

Involving in Mutual Funds have risk - low, medium, and high. Respectively it is Bond, Balanced, and Phil Equity Fund. Read more here Sun Life Prosperity Funds Profiles. If you want to park your cash just like savings you can have it in Mutual Funds Money Market.  You can withdraw it anytime just like ordinary savings in the bank and the interest is included.

Here are the sample computations on the interest you earn on this different type of funds:

NAVPS (Sept 25 to Oct 2) - source www.pse.com.ph - Sun Life Prosperity Fund

————————————————————————————— 

Sample Fund        Sept 25  | Sept 26 |  Sept 29 |  Sept 30 |  Sept 25

————————————————————————————— 

Bond Fund               1.9157   1.9108    1.9157      1.9164       1.9149 

Balanced Fund       1.8469    1.8306   1.8399       1.8410       1.8375

Equity Fund              1.6088   1.5881   1.5881       1.5979       1.5957

Money Market Fund  1.0927 1.0763  1.0762        1.0760       1.0759

————————————————————————————- 

The table above shows the different NAVPS on each fund. Some fund goes up low and some goes up high. Lets compute on the shares if we will try to invest: 

Sample investment is Php 10,000.00 on Sept 25.

The formula to get the number of shares you will have each fund are:

      Investment Amount  divided by NAVPS  =  Number of Shares

 

For Bond Fund: 10,000 / 1.9149 = 5,222.20 shares 

For Balanced Fund :  10,000 / 1.8375 = 5,442.18 shares

For. Equity Fund:  10,000 / 1.5957 =  6,266.84 shares

For Money Market Fund: 10,000 / 1.0759 = 9, 294.54 shares

 

To get the current earnings you will have for Oct 2, here is the formula

   Number of Shares x NAVPS  = Investments for Liquidity

 

For Bond Fund:    5,222.20 shares x 1.9157 = Php 10, 004.17 

For Balanced Fund:  5,442.18 shares x 1.8469 =  Php 10, 051.16

For  Equity Fund:  6,266.84 shares x  1.6088 =  Php 10, 082.09

For Money Market Fund:  9, 294.54 shares x 1.0927 =  Php 10,156.143858

 

As you can see the total money you wlll have in each fund earns different interest on the same 5-day NAVPS.  Each fund has different risk. As stated, the low risk fund is Bond Fund, the medium risk is  Balance Fund, the high risk is Equity Fund.   Take note, the NAVPS will not usually go up. it goes low unexpectedly.

If you notice the Money Market Fund is performing well today. It earns more thant 10% on its 5-day investment. You can not get this in any bank.   

We cannot predict how the mutual fund perform next days. 

Their is also a no-risk type of investment - Time Deposit. I recently applied in BPI DIrect and surely earn on 35 days term amounting to 25 pesos! lol. I will use this as a revolving fund / compounding interest / reinvesting the cash return for several decades. (^_^)

In investing your money, put it mind these quotations:

   The higher the risk, the higher the returns.

 And

Don’t put all your eggs in one basket.

is a idiomatic phrase meaning that one should not focus all his or her resources on one hope, possibility or avenue of success.

Have your money or savings diversified not just one portfolio investments.