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To continue, mutual fund companies normally invest your money in either debt securities or equity securities. Bonds fall under debt securities while stocks fall under equity securities. Depending on your goal, you should weigh and determine what type of mutual fund is good for you.
Bond Fund
This type of mutual fund invests your money in government and high quality corporate debt securities. A bond is a debt investment in which an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country. In simpler words, bonds are promise to pay made by governments or corporations. In exchange for a loan, they promise to pay the holder of the bond fixed interest rate plus return of capital over a period of time.
Since interests are paid regularly, bonds are suited for individuals whose goals are capital preservation and regular income. Bonds are usually considered safe (especially Government Issued Bonds) because they are paid first before stockholders in case the company goes bankrupt and undergoes liquidation.
Equity Fund
This type of mutual fund invests your money in Philippine equity securities which may include common stock, preferred stock and other securities exchangeable for common/preferred stock. Unlike bonds, you will increase your money if the prices of the stock goes up. Similarly, you will lose if the prices of stocks goes down. Equity fund is more risky compared to bond fund but the rewards are also higher.
Balanced Fund
This type of mutual fund is a mix of bond and equity fund. The mutual fund company invests certain portion in bonds and certain portion in stocks. This fund offers less volatility due to investment in bonds but provides avenue of long-term capital appreciation through equities.
In addition, there are also other type of funds such as dollar fund or funds that invests in other currency. To sum it up, the important thing to consider is your goal in investing and your risk strategy. If you want to risk it, go for equities. If you want to be safe but still earn money, go for bonds. If you want the average, go for balanced fund.
That's it. If you still have questions, it is to call any mutual fund companies and their agent are more willing to help you. In fact, they will even visit you to discuss more about investment opportunities.
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