First things first, what is an equity mutual fund? An equity fund, also known as stock funds, is a mutual fund that invests principally in stocks. The fund manager tries to offer great returns by spreading the investment across companies from different sectors or with varying market capitalizations.
Typically, equity funds are known to generate better returns than term deposits or debt-based funds but there is still a considerable amount of risk associated with these funds since their performance depends on various market conditions. Without further ado, here are the different types of equity mutual funds.
INVESTMENT STRATEGY-BASED CATEGORIZATION
Sectoral Fund
Also known as a theme fund, sector funds follow a specific investment theme like an international theme or local theme. Some themes might also invest in a particular sector of the market like technology or pharmaceutical. It is important to note that these funds carry a higher risk since they focus on a specific sector or theme.
Contra Equity Fund
As the name suggests, contra equity funds follow a contrarian or nonconformist strategy of investing. These equity funds analyze the market to find under-performing stocks and purchase them at low prices. This would be under the assumption that these stocks will recover in the long term.
MARKET CAPITALIZATION-BASED CATEGORIZATION
Large-Cap Fund
Typically, the large-cap fund invests a minimum of 80% of the investment in equity shares of the top 100 countries according to market capitalization. This strategy is considered to be more stable than the mid-cap and small-cap focused funds.
Mid-Cap Fund
Mid-cap funds invest around 65% of the total assets in equity shares of the top 101 to 250 companies according to market capitalization. These schemes tend to offer better returns than the large-cap strategy but tend to also become more volatile.
Small-Cap Fund
Considered the most volatile out of the three, the small-cap fund invests about 65% of the asset in equity shares of companies ranking 251 and below according to market capitalization. If done right, small-cap funds tend to offer the most returns compared to large-cap and mid-cap funds.
Multi-Cap Fund
Multi-cap funds usually invest in a mix of equity shares from large-cap, mid-cap, and small-cap companies in varying proportions. With this type of fund, the fund manager keeps rebalancing the portfolio to match the market and economic conditions as well as the investment objective of the scheme.
INVESTMENT STYLE-BASED CATEGORIZATION
Active Fund
These schemes are actively managed by the fund managers who handpick the stocks that they want to invest in.
Passive Fund
Passive funds usually track a market index which determines the list of stock that the scheme will invest in. Unlike active funds, this strategy does not require the fund manager to have an active role in the selection of the stocks.
Now, the choice is yours, Ka-Investa. Do you want to get into Mutual Funds? If yes, which one would you like to explore on?
Ever heard of the term diversification? A common phrase heard in the financial world is “diversify your portfolio”. Many have heard it and the next phrase would come up, “is it important?” It’s actually key for most financial successes. So, let us explain why.
Diversification is the practice of spreading your investments around so that your exposure to one type of asset is limited. Essentially, if you have your money all-around, you’ll be able to cushion yourself for riskier investments with safer ones. By diversifying your portfolio, your risk and reward in your investment portfolio would be more balanced.
It reduces risk and is designed to help reduce the volatility of your portfolio over time. Most investment professionals agree that diversification is the most important component of reaching long-range investment goals while also minimizing risk.
Balancing a diversified portfolio may be complicated and expensive but there are many options to widen your diversification without having a difficult time. These options are specially designed for beginners or for people who would like to be more hands-off with their portfolio.
A great example would be found in mutual funds. There are so many choices to mutual funds to fit your preferences, goals, and needs. By investing in mutual funds like real estate funds, sector funds, and commodity-focused funds, you will instantly have a diversified portfolio.
Because market risk is generally unavoidable, diversification is a great way to soften the blow. In practical terms, diversification is holding investments that will react differently to the same market or economic event. Being able to invest in different assets reduces the consequences of a wrong forecast. This is very important in investing because markets can be volatile and unpredictable.
With this practice, you’ll be able to spread your risk across different types of investments, the goal being to increase your odds of investment success.
Do you have liquid assets you want to see grow? Short-term investments might be exactly what you’re looking for. A short-term investment is a temporary investment that can be easily converted to cash. These investments are typically stored between 6 months to 5 years. The end goal of this type of investment is to gain more money quickly mostly through a passive income.
MONEY MARKET FUNDS
Money market mutual funds are a type of mutual fund that invests in low-risk and short-term debt securities. This is definitely a good choice for liquid assets because it still earns small returns without having to wait a long time. This type of fund takes about 6 months to 1 year to mature. It’s considered one of the least risky investment options because of its high liquidity.
Some of the things that need to be taken into consideration with looking into which money market fund options might be right for you are the minimum investment needed, the administrative fees, the maturity period, and the early withdrawal fees.
TIME DEPOSITS
Another good investment option is a time deposit. Time deposits are a kind of bank account that earns a fixed interest over a period of time. During the specified term, the money cannot be withdrawn. In some cases, it can be withdrawn with but it will have an early withdrawal fee.
The selection of lock-in periods can range from 30 days to 5 years. Interest rates of time deposits are higher than savings accounts. This could be a good investment if you have passive money that you would like to grow. Just like savings accounts, these are options often given by traditional banks but digital banks have better rates.
STOCKS
Investing in stocks can be for the long-term or for the short term. Short-term stocks mean more attention but with the right research, you should be able to get a good return. A disclaimer would be that stocks do not always guarantee a return.
Some things to consider when looking for short-term stocks would be the stability of the company and understanding the risk involved for each stock bought. If you would like to learn more about stock trading and the stock market, definitely check out the free lessons at Investa University.
ONLINE SAVINGS ACCOUNT
The most common option in this list would be a savings account, more specifically a savings account opened in a digital bank. To be honest, traditional banks’ savings accounts often provide the worst interest rates. Instead of investing your money there, look for higher interest rates in digital banks.
Digital banks can offer fewer fees which means more profit for the customers. Some things to keep in mind when looking for an online savings account would be to make sure they don’t have a minimum deposit, check if they have fees per deposit, and no hidden fees.
Remember Ka-Investa, there is no better investment — only the one that fits your lifestyle. Whatever you choose among all of these, the most important thing about investing is to START NOW.
The most popular question you’ll hear from finance is, “where’s the best place to invest my money?” The standard answers would be stocks, savings accounts and even real estate but did you know that your health is an investment. That’s where life insurance comes in.
Did you know that the most preferred insurance product among insurance owners in the Philippines is life insurance? In a recent survey among insurance owners, more than 30 percent prefer life insurance among other insurance products. The statistics of 2019 show that almost 1 million Filipinos with pre-need insurance plans took life insurance plans. So, what is life insurance?
According to Investopedia, life insurance is a contract between an insurer and a policyholder. A life insurance policy guarantees the insurer a sum of money to named beneficiaries in the case of the death of the insurance holder.
How does life insurance work? Depending on your policy or your investment company, you pay an installment of your insurance also known as an insurance premium. A typical life insurance policy can be referred to as your “piggy bank”. This piggy bank is 100 percent safe but you won’t be gaining an interest rate. The best thing life insurance offers in security.
If something were to happen to you, your payouts would help your beneficiaries. If nothing happens to you when your coverage ends, you receive your insurance premiums back. An important note is that life insurance is better to start as young as possible. The older you start, the more expensive the life insurance policy gets.
The great aspect of life insurance policies is that there are so many choices to fit your wants and needs. Some policies offer interest rates while others are solely made for future plans. Whatever plan you decide to get, the most important benefits of life insurance are securing your future as well as providing support to your loved ones if something happens to you.
With the current health situation around the world, this is definitely an investment worth considering. Wouldn’t you want to know that you and your loved ones will be taken care of?
A lot of people ask us, “What is the best investment for beginners?” or “Saang investment ba yung ok?” There are so many options these days that it’s hard to figure out the difference between them all.
So how do you find the best investment for you? It all starts with getting to know yourself. Parang love lang yan. You can’t find your perfect match if you don’t know who you are and what you want. (What you really, really want.)
A lot of people would just say, “But I know what I want. I want to make as much money as possible!” Well, that’s the catch isn’t it? Do you know what’s possible given your current situation? Every person has different resources and abilities, so here are some questions you need to answer first before deciding where to invest:
1. How much money can you invest?
As the saying goes, you need money to make money. Each peso you invest is like a seed—the more seeds you have, the more trees you can grow, and the more fruits you can harvest. The more money you have to invest, the more money you can aim to make.
The amount of money you can invest will also determine which investment options are available to you. Investing is not only for the rich, but there are some investments that require a lot of capital.
A good rule of thumb to find out how much you can invest is to subtract 6 months worth of expenses from your savings. The remaining amount is what you can invest.
Total Savings – 6 Months of Expenses = Investment Fund
Every month, make sure you still have enough money to cover 6 months worth of living expenses before adding more money to your investment fund.
It’s important to keep your investment fund separate from your living expenses because investing is not a get-rich-quick scheme. It takes time. If you need to pull out your investment too soon, then you’ll likely end up losing money—and nobody wants that.
2. How long can you keep your money invested?
Aside from money, another very important resource when investing is time. The longer you’re willing to keep the money invested, the more investment options you’ll have and the more money you can potentially make.
Because of compounding interest, your money will grow exponentially faster every year you keep it invested. As the interest from your investment is added to the next year’s principal amount, the impact of compounding interest becomes so big that the amount of time eventually outweighs the amount money you invest.
Here’s an example showing two investors, Person A and Person B. Person A invested P25,000 when he was 21 while Person B invested P50,000 when he was 30. Assuming the interest rate is always 10% for both cases, you’ll see that Person A’s investment will actually be worth more when they’re both 40 years old—even though Person B put in twice as much money.
When investing, think long-term. You’ll get the best results if you can invest your money for 10 years or more.
3. How much effort can you put into managing your investment?
If you have the time and dedication to educate yourself and manage your own investment, then you can save a lot on fees that would normally be paid to fund managers and financial advisers. It may even open up some investment opportunities that you couldn’t consider otherwise.
For example, a lot of people nowadays are marketing small businesses as investments—food carts and farming are just two examples. People will automatically ask “Ok ba ito?” and someone who has done it before might say “Oo! Laki ng return ko diyan!”
While it’s true that businesses can be great investments, they will only succeed if you put in the time and effort to run it well. Otherwise, you’ll just be throwing your money down the drain.
If you don’t have the time and energy to manage a high-maintenance investment, don’t worry. There are a lot of other investment options out there, which we’ll discuss later.
4. How much risk are you willing to take?
By now you’re probably tired of hearing this over and over, but it’s true—if you want bigger rewards, you’ll need to take on bigger risks. It’s difficult is to figure out exactly how much risk is right for you, but one thing’s for sure: There is no risk-free investment.
If you’re putting your money somewhere that’s risk-free, the interest rate will be so low that you end up losing money due to inflation. And if you’re losing money, then that’s not really an investment anymore.
Take savings accounts for example: Banks guarantee to keep your money safe and you definitely won’t lose a single centavo. However, the interest rate for most savings accounts is only 0.25%. That’s around 2.75% less than the average inflation rate, meaning that the value of your money decreases by 2.75% every year!
On the other hand, investing all your money in a new company that may or may not exist next year could lead you to lose all your money. But you might also have invested in the next Facebook and end up making a bigger profit than you ever dreamed of.
It’s always a balancing act when we talk about risk and reward, and the perfect mix is different for everyone. You need to take some time and really think about what would be the right balance for you.
Main Investment Options in the Philippines
Here’s a table summarizing the main investments available in the Philippines, and what their characteristics are in relation to the four questions above.
If you find any of these interesting, then scroll down for more details.
VUL Insurance
VUL insurance plans are one of the most popular investment options in the Philippines. It’s a flexible and low-maintenance investment that hits three birds with one stone—life insurance, health insurance, and mutual funds. If you don’t have insurance yet, you should seriously consider getting VUL insurance.
Minimum Investment: VUL insurance plans are very flexible because they are personalized to your needs. You can have premiums that are as low as a couple thousand pesos per month. Just keep in mind that your benefits will be proportionate to the amount you invest.
Investment Period: Though there is some flexibility with VUL insurance, it’s best to aim for an investment period of at least 10 years. Most plans will deduct the largest fees in the first few years and let you invest for free by the 5th year or so.
Risk and Return: The risk profile and rate of return with VUL insurance is average overall, but can be adjusted based on your preference. Insurance companies usually have a few funds that cater to different risk profiles. Just make sure to get a good insurance agent so they can customize the best plan for you.
Recommended For: First-time investors who want an all-in-one package and don’t mind a long-term commitment
Mutual Funds
Mutual funds are another low-maintenance investment that is popular among Filipinos and especially working professionals. It has a lot of the same benefits as VUL insurance, but with two key differences: you won’t get any insurance (obviously) and you can think relatively more short-term. Put simply, mutual funds operate by pooling together money from many different investors and investing those in various assets and securities. That way it’s easier to diversify and manage risk.
Minimum Investment: Some mutual funds in the Philippines now have minimum investments as low as P5,000. The minimum investment will vary depending on which fund you’re looking at, but they’re all relatively low as far as investments go.
Investment Period: There is usually a lock-in period for mutual funds, though they can be as short as 90 days. You could even take out your investment earlier if you need to, but there will be a penalty. And of course as with any investment, you should think long-term if you want to see the biggest returns.
Risk and Return: Similar to VUL insurance, mutual funds have an average amount of risk and return. They can be higher or lower depending on the exact fund you choose, but professionally managed funds will be less risky than managing your own money.
Recommended For: Busy bees who just want to put their money somewhere where it can grow
Stocks
If you’re after bigger returns and don’t mind taking on a little more risk, then investing in stocks is a great way to go. It’s like the DIY counterpart to mutual funds. You’ll have to put more time and effort into managing your investment, but you’ll also have greater potential returns because you won’t have to pay any fund management fees.
Minimum Investment: Nowadays, you can open a stock trading account for as little as P2,500. Some brokerss won’t even require a minimum investment if you already have a savings account with their bank. Just keep in mind that, if you can afford it, we would still recommend start with at least P8,000. More on that here.
Investment Period: Stocks are very liquid investments, which means that it’s easy to sell, take your cash, and get out at any time. But keep in mind that even stocks require some time to earn substantial returns. There’s also a good chance that you will lose money if you need cash and have to sell your stocks at a loss. Always remember: Investments are not get-rich-quick schemes.
Risk and Return: Directly investing in stocks as an individual does carry more risk than VUL and mutual funds. Unlike professional fund managers, you won’t have a big corporation and fellow professionals helping you out. You’ll also have a smaller fund, which means you won’t be able to diversify your stock picks and manage risk as easily. Of course, the upside to all of this is that if you succeed, you’ll get to keep all the profits for yourself.
Recommended For: People who want bigger returns and are willing to dedicate time to managing their investment
Businesses
Minimum Investment: The initial investment for businesses varies a lot depending on the type of business you choose. It can be anywhere from a few thousand to a few million pesos. But whatever type of business you’re looking at, just remember that you’ll probably need enough cash to cover more than just the upfront cost. You’ll need to have enough money to cover costs for the first few months when your business may not be earning money yet. Not to mention, you’ll also need to invest a ton of time and effort if you want to give your business the chance to succeed.
Investment Period: It takes time for businesses to break even and earn a profit. While some only take a few months, others can take years. And either way, one thing’s for sure—there is no such thing as an overnight success. You’ll need to work hard and work consistently on building your business if you want any chance of seeing a return on your investment.
Risk and Return: A business is one of the riskiest investments you can make. It takes more work than any other investment, and even then a lot of businesses will fail within the first year of operations. But if you’re willing to take the risk, put in the work, and keep going despite the challenges, then your business could become a cash cow and the best investment you’ve ever made.
Recommended For: Strong-willed and self-motivated risk-takers who will do whatever it takes to succeed
Real Estate
There are two popular types of real estate investments in the Philippines—condos and land. There are some differences depending on which one you choose, but both don’t require that much maintenance and the potential return is quite high. If you can afford the high price tag, real estate might just be the right investment for you.
Minimum Investment: Depending on where the condo or piece of land is located, your cash out can be just a few hundred thousand pesos or a few million pesos. Compared to other options like stocks or mutual funds, you’ll definitely need to spend more money, but it could also pay off greatly.
Investment Period: With real estate, you can make money two ways: by renting out your property or through price appreciation. In both cases, it will take time for you to earn a profit. If you’re renting out a condo, you’ll likely have to hold on to your investment for at least 10 years before you recover your cost and start seeing returns. You could see returns faster if you’ve invested in land, but even this will depend heavily on the location of the land you’ve bought.
Risk and Return: Real estate is a high risk high reward type of investment. The initial cash out is very high compared to other investments, and it’s very difficult to sell if you suddenly need cash. Not to mention that even though the returns can be huge, they are not guaranteed. Investing in land is generally a bit safer than investing in a condo, but the demand for either can be unpredictable. Before investing in any property, make sure you do your research.
Recommended For: Seasoned investors looking to diversify their portfolio of assets and investments
Bonds
If you’re the conservative type of investor and don’t mind a lower rate of return, you can look into buying some bonds. When you buy bonds, you’ll know exactly how long you need to wait and you’ll also be guaranteed a certain rate of return. Just make sure that you can leave the money invested for the entire maturity period, because pulling out the investments early will mean losing money.
Minimum Investment: You can invest in retail treasury bonds (RTBs) for as low as P5,000, though many banks will require larger minimum investments. Because bonds have such low interest rates, then you may want to invest more if you can. That way, you’ll earn more actual pesos in profit.
Investment Period: Bonds will usually have longer investment periods that are a few years long, sometimes more. But the good thing is that you can find out the exact investment period upfront, even before you put out any money. Make sure you ask about the bond’s maturity date and that you won’t need the money before then.
Risk and Return: Both risk and return are very low for bonds, which is why they are recommended for conservative investors. Though your money won’t earn huge amounts of interest, at least you’re not likely to lose any money. At the very least, you’ll get an interest rate that’s higher than what you would get in a savings account.
Recommended For: Conservative and risk-averse investors whose main priority is not to lose money
Time Deposit
Time deposits are very similar to savings deposits, except that there is a specific date of maturity when you can take out your money. Because it’s such a low-risk investment, you can expect low returns as well. However, like bonds, this is another type of investment that will at least get you slightly more returns than a regular savings account.
Minimum Investment: The minimum investment for a time deposit can be as low as P1,000. But keep in mind that banks will usually give you a higher interest rate if you put in a larger investment.
Investment Period: The investment period for time deposits can also be very short—as short as 30 days. But again, keep in mind that banks will usually give you higher interest rates if you agree to a longer investment period.
Risk and Return: Time deposits usually have extremely low risk and extremely low returns. Some of them will have an interest rate that’s only 0.25% before tax—that’s the same as a regular savings account. But if you agree to a longer investment period or invest larger amounts of money then you can get a better interest rate. We recommend looking at other low-risk investment options too so you can decide if this is really the best option for you.
Recommended For: Extremely conservative investors who don’t have access to bonds or just prefer a more flexible low-risk investment
Conclusion
At the end of the day, anything that can make your money grow can be considered an investment. These definitely aren’t all the options, but we hope this helped you understand some of the most popular investments in the Philippines better. Only you can take this information and really look within yourself to find out what the best investment for you will be.
What are some of the best investments you’ve ever made? Let us know in the comments below!
