What is a Mutual Fund?

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All About a Mutual Fund

A Mutual Fund is an investment company that pools together money from different investors and invests them in various securities depending on the investment objective of the fund. The company issues shares to the public that represents their holdings in the fund.

Money from different shareholders are pooled and invested by an investment company into a diversified portfolio of securities. This generates returns which goes back to the investor.

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Where is it invested?

Mutual fund companies (ex. bond fund, equity fund, etc.) specify the investment objectives and philosophies that will govern the investment of funds it manages.

See Related: Understanding the Funds in Mutual Funds

What are NAVPS?

NAVPS (Net Asset Value per Share) represents the price of one share from a mutual fund. All fund shares are bought and sold using NAVPS as a basis, which changes every business day depending on the market performance of the fund.

How Can You Make Money in Mutual Funds?

As a shareholder, you can participate in the growth of the stock market and government securities through NAVPS* (Net Asset Value Per Share) price appreciation, depending on the fund you’d choose to invest in.

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If the NAVPS of the fund you are invested in increases or appreciates, you can sell your mutual fund shares for a profit. In the same way, if the NAVPS of the fund you are invested in decreases or depreciates, you may realize a loss if you redeem.

Like any other investment instrument, mutual funds are best held long-term especially for funds that have investment objectives of capital growth such as equity funds.

How do I earn from a Mutual Fund?

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Photo from Sun Life

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Earnings are computed based on the NAVPS on the date of investment and the NAVPS on the (current) date of the valuation. Gains realized by investors upon redemption are (excluded from gross income) tax-free.

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Money Monkeys

Money Monkeys seeks to educate Filipinos on finance, entrepreneurship, and the rising fintech innovations. We provide easy to digest articles with the aim of raising financial literacy, cultivating a growth mindset, and harnessing the spirits of fellow entrepreneurs.

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