Why you should invest in Philippine Mutual Funds?

It's January 3, 2010 and you are ask to choose between

a) Invest P50,000 in a BPI Savings Deposit

b) Invest P50,000 in Sunlife's Mutual Fund

what would you choose?

If you choose a, you will end up with P50,687.50 on January 3, 2011 while choosing b will net to having P64,909. (using BPI Savings annual rate of 1.375% and Sun Life's Balanced Fund Net Asset Value as 1.9888 and 2.6357)

It appears that choice b is the better option. However, the decision is easier since we have not considered the risks. With choice a, you are guaranteed on the returns while the returns on mutual fund is not guaranteed.

However, will all the positive outlook in the country, i bet option B is less risky.

What is a Mutual Fund?

A Mutual Fund is an investment company that pools the funds of many individual and institutional investors to form a massive asset base.   The assets are then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments.  People who buy shares of a mutual fund are its owners or shareholders.  Their purchases provide the money for a mutual fund to buy securities such as stocks and bonds.  A mutual can make money from its securities investments in two ways: a security can pay dividends and interest to the fund, or a security  can rise in value.  The fund passes any dividends, interest or profits on the sale of its portfolio securities, less fund expenses, to shareholders in the form of distributions. 

In simpler explanation, it is like everyone gives his/her share to a fund manager and that fund manager invests the money in security investments

Why Invest in a Mutual Fund?  

    

Interest rates can be volatile and passive short-term investing can erode investment values due to inflation.  On the other hand, the stock market has historically outperformed both short and long-term bank deposit rates.  Unfortunately, not so many people are familiar with active financial management and effective diversification. Through mutual funds, even investors with limited resources can participate in combinations of these high-yielding investment instruments without the headache of personally selecting and monitoring a portfolio.

Mutual funds are ideal vehicles for growing money over time.  It can be used as a savings medium for retirement, education for a child, or building up a long-term cash fund for some specific future financial objective.   While largely thought of as a retail financial product, mutual funds are also ideal instruments to augment the yields generated by organizational funds and enhance their level of diversification.  Mutual funds have been popular investments for pension and trust programs, other employee benefit funding objectives, and institutional asset-liability matching.

Mutual Funds are another way to build money over time. Personally, i only started last year where my P30,000 growing to P45,000 at the end of 2010. This year, i started to put small amount every month as part of peso cost averaging. Learn about peso cost averaging here.

The BDO Easy Investment Plan (EIP)

Hi! Thank you for dropping by.

If you have time and interested about investing in the stock market or learn more about personal finance, i suggest you start here

Also as a further learning, you may want to read my previous posts on mutual funds.

Why You Should Invest in Mutual Fund

How to Get Started in Mutual Funds

Different Types of Mutual Funds

Now, about the BDO Easy Investment Plan

The BDO Easy Investment Plan (EIP)

The BDO Easy Investment Plan is a "saving and investment" program whose objective is for an individual investor to attain his financial goals through the twin habits of regularly saving and investing.

(Keywords: regular savings and investing)

Under this arrangement, an investor enrolls his savings,checking or payroll account in a BDO automatic debit facility wherein a fixed amount/s (with a minimum of Php1,000.00) per month is/are deducted for the purpose of immediately investing in selected BDO UITFs. Every time the market value of his UITF investments reaches the minimum amount of Php 10,000.00 investment required for the selected UITFs, he is issued a Confirmation of Participation (COP) which converts his EIP contributions into regular UITF investments. As long as he is enrolled in the program, the process of saving, investing and issuance of COP continues automatically on the selected contribution dates.

(Before proceeding, would you consider investing in the Philippine Stock Market? It is similar with BDO EIP but you have more control on what companies to invest in. The concept is similar which is called peso cost averaging)

Unit Investment Trust Funds

Unit Investment Trust Funds (UITFs) are open-ended pooled trust funds made available to investors through units of participation which are valued on a marked-to-market basis. UITFs empower the retail investor since they require relatively small minimum participation amounts yet provide equal access to higher earning investments not readily available to small investors because of the sizeable lots required. BDO's wide selection of UITFs allows clients to choose a fund suitable for their particular stage in life, investment objectives, time horizon and risk profile. (read more)

For an enrollee in the program, the EIP has become a facility to help him to regularly set aside funds for investment to meet multi-purpose needs in the future, such as funding a wedding, children's education, construction of a home or retirement, etc. It also gives him an affordable access to the services of the BDO professional investment managers who keep constant watch over the BDO UITFs.

The EIP espouses the investment precept that the sooner an individual investor begins investing, the more time his money can grow. Investing even in small amounts when done on a regular basis and early on, can produce considerable rewards over the long term. Through the EIP, he can experience the power of "compound interest" which refers to interest earned on principal plus interest that was earned earlier.

Another advantage of the EIP is that it enables an individual investor to ride out market movements through "cost averaging." Investing fixed amounts of contributions at regular intervals over a long period of time will build his portfolio one step at a time, regardless of market conditions, effectively averaging costs over time. In short, through the EIP, he will be able to invest without worrying about monitoring market movements and timing his investments. This strategy also mitigates the risks associated with investing lump sums at a wrong time and bearing the consequence of the market losing value shortly after making the investment.

Currently, selected BDO UITFs, particularly those which are best for investors with a longer term investment horizon, are available for the EIP.

Here's how to join the EIP, in just three easy steps:

1. Fill out the EIP Application Form and enroll your BDO Savings/Checking/Payroll Account in the EIP at any BDO branch.

2. Decide on the following details of your contribution:

     • Amount: Minimum of Php1,000.00 per contribution

     • Frequency and schedule: Once a month (5th, 10th, 15th, 20th, 25th or the 30th)
        or Twice a month (every 5th & 20th, 10th and 25th, or 15th & 30th)

3. Choose what type of UITF is best for you: BDO Fixed Income Fund, BDO Peso Balanced Fund or the BDO Equity Fund

Rush to your nearest BDO branch today!

For inquiries, please call Trust and Investments Group at 840-7000 locals 4265, 4244, 4255 and 7032 or send an e-mail to investments@bdo.com.ph.

Unit Investment Trust Fund

UITFs were introduced in the Philippine Market by various trust entities in 2005, after the Bangko Sentral ng Pilipinas (BSP) issued Circular 447 in September 3, 2004. The Circular, jointly crafted by the BSP and trust practitioners, was designed to align the operation of pooled funds under management by trust entities with international best practices and to ensure the differentiation of such pooled funds from bank deposits and other direct liabilities of financial institutions. The UITFs are also governed by BSP Circular 593, which defines the industry standards for UITF client suitability assessment and risk disclosure.



UITFs have the following distinct advantages:


Managed by experienced fund managers.
Higher returns since UITFs are fully invested as there are no reserve requirements.
Very liquid because UITFs are invested only in tradable securities which are valued at market.
Regulatory measures are in place to inform and protect investors. These are:
- Securities safekeeping and valuation by a third party custodian/s
- Audits by BSP-accredited external auditors
- Weekly publication of Net Asset Value per Unit (NAVPU) in a newspaper of general circulation
- Standardized UITF training program for sales personnel

- Quarterly reports to participants required
Investments in the specific UITFs are evidenced by a Participating Trust Agreement and a Confirmation of Participation. These document the proportionate beneficial interest of each participant in the UITF.


Valuation of the UITF is based on the marked-to-market NAVPU computed every banking day. For BDO UITFs, the NAVPU is available after 4:00 pm for the money market funds and after 7:00 pm for the bond, balanced and equity funds. It is accessible via phonebanking and text daily. For phonebanking, dial (632) 631-8000 and follow the voice instructions. For text (available after 8:00 pm for all funds), type SMAC<space>NAV and send to 2966 (P2.50/text for Smart and Globe; P2.00/text for Sun).


The Net Asset Values (NAV) of the UITFs are net of management fees, which range between 0.5% and 1.0% p.a. of NAV. They are also net of custodianship fees, external audit fees and financial information providers' fees, which together amounts to no more than 0.1% p.a. of Average Daily NAV.
Based on the NAVPU, acceptances and notices of redemption of participation in the UITF are serviced by BDO Branches on or before 11:30 am on a banking day for money market funds and on or before 12:00 noon for the remaining funds.


(source: www.bdo.com.ph)