Investing in mutual funds results in huge earnings

MANILA, Philippines - The year past was marked not only with peaceful elections but record-setting levels in the country’s stock market. The benchmark Philippine Stock Exchange Index (PSEi) posted a gain of 37.62 percent to a historical level of 4,201.14.

“And with the great outlook for the new year, we certainly have something to look forward to and a fresh and positive start for 2011,” Janice Marie P. Fer-nando, managing director and chief of distribution for wealth manager Rampver Strategic Advisors (RSA), said.

Likewise, mutual funds also reached record levels of over P95 billion in assets, surpassing the previous high of P88 billion recorded in 2007.

Fernando however said that while it is good to celebrate the new year by making resolutions and rebalance one’s portfolios, it is aslo important to make decisions swiftly but wisely.

“Let us not fall into the traps of procrastination to delay savings and investing. Begin the year right by diversifying some of your hard-earned money into reputable investment instruments with proven track records,” the managing director added.

Practically all mutual funds managed by different fund managers recorded positive gains year-on-year, be it fixed income or bond funds, equity funds (darling of the crowd), balanced funds, or foreign-currency denominated bond funds.

To prove her point, Fernando cited the case of Mr. Investor A who started investing in November 2006, reaching an accumulated total amount of P500,000. It was placed in a peso-denominated bond fund. “As of Feb.1 this year, its value is now P622,714.44 or roughly 24 percent higher,” she pointed out.

Meanwhile, Ms. Investor B started investing in a balanced fund in 2006, and likewise reaching an accumulated P500,000. It is now roughly valued at P788,665.32, or a 58-percent increase in earnings in four years.

Preferring higher return albeit higher risks, Mrs. Investor C invested in an equity or stock fund with P10,000 as an initial placement. Religiously adding to her portfolio, it reached P500,000 and it now grew by over 72 percent to P857,462.73.

The Rampver managing director stressed that like Mrs. Investor C (the three cases are real accounts) one need not invest a sizeable amount but instead make regular placements. It could be as regular as monthly or whenever there is disposable or extra earnings.

Mutual funds are a pool of invesments made by individuals and institutions, wherein their investments are valued in redeemable shares called net asset value per share or NAVPS. The fund is overseen by professional fund managers, backed by research teams focused on seizing market opportunities.                   

“The pooled funds enables it to spread in various securities resulting to greater propensity to warn more and spreads the risks across the different securities,” Fernando explained, adding that earnings from mutual funds are excluded from items classified as taxable income.

She further explained that the mutual fund industry is highly regulated by the Securities and Exchange Commission (SEC). Moreover, securities are kept with a custodian bank separate from the management company. The shareholder records are with the transfer agent, and an external auditor oversees financial issues.