Wednesday 21 August 2013

MONEY MATTERS : WHICH IS BETTER, MUTUAL FUNDS OR STOCKS?

Simply put, you can add your money to the other people's money and together you'll pool your fund to buy stocks for capital appreciation. That what Mutual Fund (MF) is. MF will be handled by fund managers who are knowledgeable enough to maximize your gains and minimize your losses.
 
An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is maintained to match the investment objectives stated in its prospectus. (Source: Investopedia)

Which is better - Stocks or Mutual Funds?
Firstly, let it be known that mutual funds may invest in stock market too. Some people ask if it's best to invest in stocks directly or invest in mutual funds instead. It has it's pro's and con's.

ADVANTAGES:*

Professional Management
One of the main attractions of mutual funds is that it affords its investors, particularly the small ones, the services of full-time professional managers whose job is to analyze the various investment products available in the market and select those that would give the best possible returns to the fund and its shareholders.

 


Low Capital Requirement
Most mutual funds in the Philippines require a minimum initial investment amount of only Php5,000.00 and minimum additional investments of Php1,000.00.

Diversification
There is a saying that goes,  “Do not put all your eggs in one basket.”  There is no such thing as a “sure” thing.  An important investment principle that requires holding several securities to reduce the risks associated with investing in individual securities is called diversification. When people invest in a mutual fund, they achieve instant diversification because the fund is usually invested in a wide array of securities.* Source: Philippines Investment Funds Association

DISADVANTAGES:
Management Fee
As cool as the advantages sound, "there's no such thing as free lunch." Since your fund is being handled by a fund manager, you'll be charged a management fee of course. Generally, this fee is a tiny percentage (0.5% yo 1%) of your investment.

All up to the Fund Manager
You have to have a complete trust on your fund manager. The performance of your fund totally depends on him. You don't have a say on which stocks to buy unlike when you're directly buying and selling on stock exchange (i.e. COL Financial). Everything is at your fund manager's disposal. That's an idiom, by the way.

Never too late!
No PDIC Coverage
As good as the fund manager's intentions are, investors do not have any guaranteed claims should the fund go bankcrupt. Only savings and time deposit accounts have PDIC coverage up to Php 500,000. Again, we're going back to Low Risks, Low Returns. High Risks, High Returns equation.

Overall, it all depends on your goals. If you don't have enough time and expertise but has funds, you may opt to try mutual funds. Otherwise, if you want to learn and try stock market yourself, investing directly is a grand idea! Finally, to get the best of both worlds, you can invest in both and see which works better ;) -CMK

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5 comments

  1. Nice post! I don't really have MF or stocks, and I am scared. But maybe, in the future. I am lazy to study these things, but it is good to learn the basics! :)

    ReplyDelete
    Replies
    1. Hello Juvy! Agree... take it one step at a time. Good luck :D

      Delete
  2. Hi Kristine,

    Dropped by from Brighter Life.

    It's great idea to invest in mutual fund if one does not have time and expertise to study the stock market. However, I'm guessing that once the invested amount goes to considerable amount, the investor will track and will study where the fund manager is putting his money. Thus, studying the market is inevitable.

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    Replies
    1. Hi Elvin,

      Right. As they say: "the riskiest investment is the one that you know nothing about."

      Thank you for dropping by :)

      Delete
  3. sometimes we need to consider the ETFs too.

    And even MU has a little capital, well the F.Manager has the right for it still. :/

    ReplyDelete

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