But what exactly are mutual funds? How do they work, and why should you consider investing in one? This guide will break down everything you need to know, from the basics to the advantages and different types of mutual funds.
What is a Mutual Fund?
A mutual fund is a type of investment that pools money from multiple investors to buy a diversified portfolio of stocks, bonds, money market instruments, or a mix of these assets. Instead of selecting individual investments, you and other investors contribute to a professionally managed fund, which is overseen by a fund manager.
How Mutual Funds Earn Money
Mutual funds generate earnings in three main ways:
Capital Appreciation – If the value of the investments within the fund increases, the price of each share/unit of the mutual fund also rises. When you sell your shares at a higher price than when you bought them, you earn a profit.
Dividends and Interest Income – Some mutual funds invest in dividend-paying stocks or interest-bearing bonds. These earnings are either reinvested into the fund or distributed to investors.
Why Invest in Mutual Funds?
Mutual funds are an excellent choice for beginner investors because they offer professional management, diversification, affordability, and liquidity. Let’s explore the top benefits:
1. Professional Fund Management
Not everyone has the time or expertise to analyze stocks, bonds, and economic trends. Mutual funds provide access to expert fund managers who make strategic investment decisions to maximize returns while managing risks.
For example, John, a full-time employee, doesn’t have time to monitor stock prices daily. Instead, he invests in a mutual fund where professionals handle the buying and selling of assets, ensuring his money works for him efficiently.
2. Low Capital Requirement
Unlike direct stock market investments that require large amounts, mutual funds allow you to start with as little as ₱1,000 and make additional investments for as low as ₱1,000 also. This makes investing accessible to more Filipinos.
Maria, a young professional, starts investing with just ₱5,000, growing her funds gradually over time without the need for a significant upfront investment.
3. Diversification and Risk Reduction
The saying "Don’t put all your eggs in one basket" applies to investing. Mutual funds spread your money across various assets, minimizing the impact of poor-performing investments.
For instance, Ana invests in a balanced mutual fund, which holds stocks, bonds, and money market instruments. If stock prices drop, her bond investments help stabilize her portfolio, reducing risk.
4. Liquidity (Easy Access to Cash)
Need to withdraw your investment? Mutual funds offer high liquidity, meaning you can sell your shares and receive your money within a few banking days. Unlike real estate or long-term insurance plans, mutual funds provide quick access to your funds when needed.
Miguel, who suddenly needs cash, redeems his mutual fund shares and receives his money within 3-5 banking days—a faster process compared to other investment types.
5. Safety and Regulation
Mutual funds in the Philippines are strictly regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act. This ensures transparency, security, and fair investment practices.
Additionally, mutual funds store their assets with reputable banks, adding an extra layer of protection for investors.
6. Equal Opportunity for All Investors
Mutual funds ensure fairness—whether you invest ₱10,000 or ₱1 million, you get the same percentage return.
Ricardo invests ₱1 million, and Sofia invests ₱10,000. If the mutual fund earns 15% in one year, both investors receive a 15% return on their respective investments.
7. Potential for Higher Returns
Compared to traditional savings accounts and time deposits, mutual funds can offer higher returns over time due to professional management and strategic asset allocation.
Historically, Philippine mutual funds have earned an average of 6% to 18% annually, depending on the type of fund and market conditions.
8. Convenience and Accessibility
Investing in mutual funds is easy—you can do it online or through banks, insurance companies, and financial advisors. Some providers even offer mobile apps where you can track your investment anytime.
9. Global Investment Opportunities
Some Philippine mutual funds allow you to invest in international markets, including stocks in the U.S., Europe, and Asia, without the hassle of complex documentation or high capital requirements.
For example, with just ₱10,000, you can invest in a fund that includes Apple, Amazon, Tesla, or global ETFs.
10. Tax-Exempt Earnings
Unlike other investments, mutual fund earnings in the Philippines are tax-free. Since 1998, capital gains from mutual funds have been excluded from taxable income, allowing investors to maximize their profits.
Types of Mutual Funds in the Philippines
Filipino investors can choose from different types of mutual funds based on their financial goals and risk tolerance:
Equity Funds – Invests primarily in stocks. High risk but high potential returns. Best for long-term investors.
Bond Funds – Invests in government and corporate bonds. Lower risk with stable returns. Ideal for conservative investors.
Balanced Funds – A mix of stocks and bonds. Offers moderate risk and returns. Suitable for medium-term investors.
Money Market Funds – Invests in short-term, low-risk securities. Best for capital preservation and liquidity.
Index Funds – Tracks a stock index like the PSEi. Lower fees due to passive management.
Global Feeder Funds – Invests in global funds in international markets. With these funds, Filipinos can be part of the global stock market opportunities.
How to Start Investing in Mutual Funds
Step 1: Open an Investment Account
To start investing in mutual funds, the first step is to open an investment account. You can easily sign up through financial institutions, banks, or online platforms like Rampver Online.
Eligibility Criteria
To be eligible, you must meet the following requirements:
18 years of age or older
Filipino Citizen
Have 1 valid Philippine-issued ID
Hold an active Philippine bank account
No paper forms are required—everything is digital, from the sign-up process to making investments. All correspondences, confirmations, and updates are sent to your email for your convenience.
Step 2: Choose a Mutual Fund Best Suited for Your Goals and Risk Profile
Choosing the right mutual fund is essential for achieving your financial goals. To make an informed decision, it's important to understand your risk profile, which reflects how much risk you're comfortable taking to reach your potential returns.
How to Know Your Risk Profile
Your risk profile is shaped by factors like your age, income, financial goals, and how you handle market volatility. Are you okay with market ups and downs, or do you prefer a more stable approach with moderate returns?
To determine your risk profile, Rampver Online offers a free and easy questionnaire when you sign up for an account. This tool evaluates your financial situation, investment goals, and comfort with market fluctuations. Based on your answers, Rampver Online will recommend mutual funds that best suit your risk tolerance and investment objectives.
How to Choose the Right Fund
Once you understand your risk profile, you can choose from various types of mutual funds:
Conservative Funds – Best for investors who prefer lower risk and more stable returns. These funds primarily invest in bonds and fixed-income investments.
Balanced Funds – Ideal for those who are willing to take on moderate risk in exchange for higher returns. These funds invest in both stocks and bonds.
Aggressive Funds – Suitable for investors who are comfortable with high risk and seek higher returns. These funds focus on equities (stocks) and can experience greater market fluctuations.
Step 3: Fund Your Investment
You can start investing with as little as ₱1,000. To add funds to your account, Rampver Online offers various payment options including GCash, QRPh, Instapay, and bank transfers. Regular contributions will help grow your investment over time.
Step 4: Monitor Your Investment Performance
Once you've invested, it’s important to track your mutual fund’s performance. You can monitor how your funds are doing and reinvest as necessary to maximize your returns. Keeping an eye on your investment ensures that you stay on track with your financial goals and adjust if needed.
For new investments, please allow a turnaround time of 3-5 working days for booking and processing your investment. During this time, your payment will be confirmed, and your funds will be officially invested into your chosen mutual fund.
Step 5: Diversify and Build Your Investment Portfolio
Diversification is key to managing risk and maximizing returns. By spreading your investments across different types of mutual funds, you can reduce the impact of any single asset’s poor performance.
Start with a core fund that matches your risk profile, like a balanced fund. Then, as you become more comfortable, consider adding funds that specialize in different areas—such as bond funds, global funds, or dividend-paying funds—to achieve a well-rounded portfolio.
Diversifying your investments not only minimizes risk but also increases your potential for growth, helping you build a more robust financial future. Remember to review your portfolio regularly to make adjustments based on market conditions and your evolving goals.
Sign up today with Rampver Online and start investing from your laptop or smartphone!
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Click here to sign-up for FREE!Is a Mutual Fund Right for You?
Mutual funds are a great investment option for Filipinos who want professional management, diversification, affordability, and long-term growth potential. However, they are not risk-free, and market fluctuations can affect returns.
Before investing, consider your financial goals, risk tolerance, and investment timeline. Consulting a licensed financial advisor can help ensure that you choose the right fund for your needs.
Start Small, Think Big, and Grow Your Wealth with Mutual Funds!
A Realistic Example: John’s Journey as a Beginner Investor
Let’s take a look at John, a typical Filipino who is new to investing and wants to build his wealth over time. John is a 30-year-old office worker who has been saving a little money every month but is unsure about where to invest it. He has heard about mutual funds from friends and social media but doesn’t know how to start.
John’s Financial Goals
John’s goal is simple: He wants to grow his savings for the future—whether for his retirement, buying a house, or funding his children’s education. He has ₱10,000 that he wants to invest but isn’t sure about the risks of putting his money into stocks or bonds directly. He also doesn’t have the time to actively manage his investments.
Step 1: John Researches about Mutual Funds
After a bit of research, John learns that mutual funds are a good option for people like him who are new to investing. He finds that mutual funds are managed by professionals who do the hard work of picking stocks and bonds, allowing him to invest with less stress and risk. Plus, he finds out that mutual funds are affordable, with some funds allowing him to start investing with just ₱1,000.
Step 2: John Chooses a Mutual Fund
John decides to invest in a balanced mutual fund through Rampver Online, which invests in a mix of stocks and bonds. He likes this option because it offers a moderate risk level and balances both growth potential and stability. He’s willing to take on some risk for the chance to earn higher returns over the long term.
He invests his initial ₱10,000 in this mutual fund. The fund is actively managed by a professional fund manager who will select investments for the fund based on market trends and economic outlooks.
Step 3: John Adds to His Investment
John continues his monthly savings habit, setting aside ₱1,000 every month to add to his mutual fund investment. Over time, he makes additional contributions as his financial situation improves, consistently growing his portfolio. He understands that regular contributions are key to dollar-cost averaging, where he buys more shares when prices are low and fewer shares when prices are high.
Step 4: John’s Investment Grows Over Time
In the first year, the mutual fund earns a 10% return, meaning that his ₱10,000 has grown to ₱11,000. While he’s excited about the gains, he knows that mutual funds can be volatile, and there may be years where the return is lower or even negative. But since he is investing with a long-term mindset, he remains patient and continues contributing to his fund.
In the second year, the fund earns another 12% return, growing his investment to ₱12,320. By the time John hits his 5-year mark, his initial ₱10,000, along with his additional contributions, grows to ₱20,000.
Step 5: John Monitors His Investment
Although John is a beginner investor, he knows that it’s important to monitor his mutual fund regularly. He checks the fund’s performance every few months using his online account and reviews the quarterly updates sent by his fund provider. John also seeks advice from his financial advisor once a year to ensure that his investment strategy is still aligned with his goals.
Step 6: John’s Investment Strategy Pays Off
As the years pass, John’s mutual fund investment grows steadily. By the time he reaches his 10-year milestone, his initial investment of ₱10,000 has appreciated significantly, and he’s earned returns that have helped him achieve his financial goals. John is now able to use his investment to help fund his retirement plan, and he feels more confident about his future.
Lessons from John’s Journey
Start Early: By starting early, John was able to take advantage of the power of compounding, where the returns on his investment earned their own returns.
Consistency is Key: Regularly contributing to his mutual fund allowed John to build wealth over time, even though he was only able to invest small amounts at first.
Patience and Long-Term Strategy: John understood that mutual funds are not a get-rich-quick scheme. His patience paid off as his investment grew steadily over the years.
John’s journey shows that even with limited funds and no advanced knowledge of the stock market, mutual funds offer an accessible, safe, and efficient way for beginners to invest and grow their wealth. Whether you are like John, just starting with ₱1,000, or looking to make regular investments to build your future, mutual funds provide a solid foundation for achieving your financial goals.
So, like John, you can start your own investment journey today—take the first step and invest in your future with mutual funds.