Investing your money is a wise move in order for it to grow and to start making your money work for you. And investing in mutual funds can be a good option especially for beginners. Those who are not yet well-versed in investing in the stock market and who do not have enough time to monitor it by themselves. You just need to consider some important things before investing.
If you have some extra cash, instead of just putting it all in a bank why not invest it? Putting your money in a bank is a good choice if it serves as an emergency fund due to its accessibility. But, if you want it to grow and to have a higher interest, you need to invest it.
Still in doubt? You may want to regard the following reasons why you should invest in mutual funds.
Reasons Why You Should Invest In Mutual Funds
Professionally Managed
Mutual funds are managed by professional fund managers who analyze the market which stocks and/or bonds to buy or sell in the portfolio of a fund on a daily basis. They will analyze the investment products available in the market and to select which will give the best possible returns.
You can also take advantage of their expertise and full-time service. And what’s more? You do not need to make any investment strategies and brain-cracking decisions. Let them do it for you. They also have financial advisors that will assist you in finding the right type of mutual fund that will fit your needs. They will take care of your money while you are attending your other priorities in life.
Liquidity
You can redeem your shares anytime you want without worrying about finding a buyer at a reasonable price. Making it easily convertible to cash. However, mutual fund companies have a holding period wherein you will be charged for early redemption.
That’s why it is important that you also know the minimum holding period of a particular mutual fund. A holding period is the duration or length of time wherein a mutual fund investment is not encouraged to be sold.
Diversification
Funds are placed in different types of investments to minimize the risks. Mutual funds can be invested in different securities such as stocks, bonds, money market instruments, and other assets. Through this, your chance of losing your money is lessened.
You can also avail more than one type of mutual fund to cater to your different goals in life and your current financial situation. Investing in mutual funds is one of the easiest ways to achieve diversification and asset allocation without requiring in-depth knowledge of the investor.
Diversification is important especially when it comes to investment since it is full of uncertainties. And when you invest in mutual funds, it is directly diversified since it is required by law to invest in a wide array of securities. Unlike when you do it by yourself that you have to monitor all of your assets daily.
As what Warren Buffett once said,
“Do not put all your eggs in one basket”.
Tax-free
When it comes to investing, what will really matter is not how much money you make but how much money you keep after taxes. And luckily, this is is one of the key benefits of investing in mutual funds.
According to the Comprehensive Tax Reform Package of 1998, earnings from mutual funds are not taxable. It is one of the investment types in the Philippines that are tax-free aside from government programs like Pag-IBIG MP2 and SSS PESO Fund.
Personally, I consider this one of the best reasons why you should invest in mutual funds. We know that the personal income tax here in the Philippines can go as high as 35% depending on your income. Whereas the corporate income tax rate is 30% based on net taxable income. (Refer to the official website of BIR for more information).
Think about how much you can save from being tax-exempt. Though, mutual funds also have some certain fees. As much as possible, look for ways on how to be able to make most of your money.
Affordability
Mutual funds will cater not only to big-time investors but also those investors who do not have a sizeable amount of money to invest. You can initially start small and when you have more extra money you can put bigger additional investment. It is even flexible in the sense that you can invest any amount as long as it is not below the required minimum amount. And even to top-up anytime since you are not required to do it regularly.
For as lows as Php 1,000 as an initial investment, you can already start investing in mutual funds and with just a minimum succeeding investment of Php 500. Making it very budget-friendly.
Better Rate Of Return
A mutual fund has a higher interest rate compared to a savings account. On average, it has around 12% interest gain compared to the 0.25% interest rate of the bank savings account. Though, the earnings are not guaranteed since it is dependent on the market performance. And the interest gain will vary also depending on the type of mutual fund.
If you want to have a higher profit, you can choose the aggressive type of mutual funds. But if you want to be safe and at the same time earning a decent rate compared to the banks, you can choose moderate or non-aggressive type. Remember that the higher the interest rate, the higher the risk the greater the chance that you will lose your money.
You can also check the performances of the different types of mutual funds offered by different mutual fund companies. You can visit the official website of the Philippine Investment Funds Association (PIFA).
Safe
All of us want our money is in good hands, right? That’s why many people prefer to put their money in banks. After all, the money that we have was not freely given to us. We exerted some effort into it.
Fortunately, mutual funds are highly regulated by the Securities and Exchange Commission (SEC) to protect the interest of investors. They are required to comply with the Republic Act 2629 otherwise known as the Investment Company Act.
This gives us the assurance that our money will be strictly monitored and that investing in mutual funds is really legal.
Transparency
Regular updates on the value of your investment are available. You can even check the performance of your mutual funds online and you will know how much you lose or you gain for that particular day. You can even check your transaction history.
Though this is not as transparent compared to directly investing in the stock market. Wherein, you will know what particular company you have some shares and how many shares you own for that company.
Convenience
We are already in the digital age wherein almost everything can be done online. You can already shop online, send money online, and pay your bills online. You do not have to go to different places in order to be able to do those transactions. Take advantage of the technology that we have.
Same with investing in mutual funds. You can open a mutual fund account online. You just need to visit their website and fill-up those forms. Even to top-up and to redeem your investment, you can do it online too.
Saving money is a good start but investing it is a smarter move. Investing in mutual funds is applicable to people who have zero to minimum experience in investing. It is also one way of beating the inflation rate and it is tax-free. You can refer to FAQs about mutual funds to know more about it. I also give some clarification regarding some common misconceptions about mutual funds.
Above are the reasons why you should invest in mutual funds. Hopefully, it gives you some clarity on why investing in mutual funds can be good. What will be your next step?