What are Mutual Funds? Are They Legal?

Due to insistent public demand and the growing awareness on Mutual Funds, we’d like to elaborate on this topic more. What really is Mutual Funds and why is it making such a big intrigue to a lot of us, having a higher interest rate than the usual bank deposit? Isn’t this one of those SCAMS that victimized a lot of people in the past loosing a lot of their hard-earned money?

Read on so that you will be enlightened just like me when I got to know this Mutual Funds. (These are taken from the Investment Company Association of the Philippines (ICAP) which has all the mutual fund companies registered with and licensed by the Securities and Exchange Commission (SEC) – talking about legality eh) (http://www.pifa.com.ph – best viewed in Internet Explorer)

What is a Mutual Fund?

Mutual Fund CycleA 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.

Different Funds, Different Features

In the Philippines , there are currently four basic types of mutual funds

  1. Bond funds
  2. Equity funds (also called stock fund)
  3. Balanced funds
  4. Money market funds

Bond funds invest primarily in bonds such as treasury notes issued by the Philippine government and commercial papers issued by reputable companies in the Philippines . Having a full basket of only fixed-income securities, bond funds provide capital preservation while maintaining a conservative stance in terms of asset allocation. Like bond funds, money market funds also have a conservative stance since they have a full basket of fixed income funds. The main difference lies in the term of investments of money market fund investments, which is one year or less.

[ad#content300] Equity funds invest primarily in shares of stock issued by Philippine corporations. The dominance of stock issues within the portfolio positions the fund to attain a more aggressive rate of growth.

Balanced funds invest in both shares of stocks and bonds, thereby accessing the growth potential of stocks tempered with the presence of secure fixed-income instruments. Professional fund managers create value for shareholders by providing superior yields within controlled risk exposures. Certainly, expective in both security selection and asset allocation go a long way in ensuring better long-term rewards for mutual fund investors.

Money Market funds invests in special savings deposits much like that of the bank. Risk is at the very minimum as well as the returns.

Mutual Funds as Explained in Pesos and Sense


What are the benefits of Investing Early in Mutual funds?


Which Mutual Fund is the Best to Invest In?

As told by my mentors, it really depends on your personality, risk tolerance and investment horizon. Rule of thumb would be, the higher the risk, the higher the return of investment. If you are the conservative type without tolerance to the ups and downs of the market, then go for Bonds and Money Market Funds. These have very minimal risk although you can’t expect high return as well. However, if you have high tolerance on risks and your primary aim is capital growth, then you could go with Stocks or Equity fund. These can give you the highest return although the risk is much higher. Balance funds are on the medium level since these are invested both in bonds and stocks.

Looking at the different types of mutual funds and their risk level, the more appropriate approach is to check first why are you investing in mutual funds. Are you investing for the long term? If not, how long is your investment horizon? Are you the risk averse type of a person or the type that can tolerate losses along the way.  Having these factors checked will definitely give you an idea which fund to invest in.

I’m Convinced – How Do I Invest in Mutual Funds?

To invest in Mutual Funds, you simply fill up the application form of your chosen Mutual Fund Company thru a broker like myself. The minimum investment vary from company to company – Php5,000 for some. In buying mutual funds, you sometimes have to pay entry fees called sales fees/load. If you sell your mutual fund earlier than a specified time, a mutual fund may also deduct from the proceeds of your sale an exit fee called a redemption fee/back end load.

For complete step by step procedure, follow this link – How to Open a Mutual Fund with Sun Life Financials (Sun Life Prosperity Funds)?

To realize earnings on a mutual fund, you just compare the current net asset value per share (NAVPS) of the fund with the fund’s NAVPS at the time you bought it. NAVPS is the daily price of the fund that is published daily in newspapers and posted on web sites. (i.e. Pifa, Businessworld, Sun Life). If you want to compute for the effective earnings though, you should include the cost of sales and redemption fees, if any.

For more questions on Mutual Fund, you may email garrydc@financialplanningph.com or text me on the following numbers 0922.897.8077 / (globe) 0916.414.7400.

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Garry Zaldy de Castro is an advocate, Financial Advisor, Certified Investment Solicitor (Mutual Fund Representative), blogger, IT practitioner, husband to Aileen and a dad to Jacob and JohnD. He started Financial Planning Philippines in 2008 just to share his financial learning to friends, relatives and anyone who wishes to be financially independent.


  1. Hi Gary,

    Does mutual fund have an advantage over UITF? I’ve heard that in UITF there is a 20% deduction on capital gains as prescribed by law, whereas in mutual fund there is none.

    And also, does Sunlife have an Index Fund? Is the managed mutual fund more practical in Philippine setting?

    Thank you.

    1. Yes, it does have a 20% withholding tax on gains. Almost same concept lang sila actually. Based on experience siguro, if you’re closely connected with your mutual fund representative, you can ask questions from time to time as well as he/she can easily assist you. Unlike UITF, you deal with bank personnel. You only get in touch with them if you go to the bank during banking hours.

      Re: Index fund for Sun Life – no they don’t have.

      Re: managed fund more practical in Philippine setting – it depends on your preference. If you have the time and knowledge to do the monitoring, buying and selling, you might be better off doing it directly. But if you have a day job/ active work then you might want to leave the dirty work with the fund manager and earn more in your active job.

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  4. Additionally, I’m interested in Sun Life Mutual funds.. can you give me an idea on how that works like how much is the minimum investment and can I add more money to it on a regular basis to increase my investment?

  5. Hello,
    I’d like to invest in mutual funds long term. However I’d like to know if it’s ok to select a higher risk type of mutual fund like equity if I do intend to do this for like 30-40 years? I will use this investment when I retire. Is this recommended as compared with opening a pension plan or are there other options which i can consider?

    thank you.

    1. Hi Raleine Ann. Historical performance shows that Equity funds have outgrown Bond and Balanced Fund. So if you intending to invest for 30-40 years, then Equity might be the best choice.

      As compared to packaged pension plans that offers a guaranteed but limited returns, mutual funds is one of the better option for retirement.

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