If for some good reasons you are averse in taking a very risky type of investment or you do not have enough time to study and learn more about the stocks, then pooled funds is another thing you might want to consider.
What are Pooled Funds?
This is almost the same with stocks but the difference is that with pooled funds, a fund manager does the processing of the investment for you. He will also heavily decide on your behalf. Another feature deals with buying 2 or more stocks pooled into one account. Unlike investing in stocks where you need to individually buy shares of different companies, pooled funds gives you the advantage of not necessarily doing it.
Pooled funds have two types- Mutual Funds and Unit-Investment Trust Funds (UITF). These two are included in the six investment instruments I want to discuss. Please remember that both Mutual fund and UITF are pooled funds.
I will just be explaining some overview of the pooled funds so you will have a clearer idea where and how you will invest your money if you want it this way.
Investment Areas for Pooled Funds
As stated above, your money in pooled funds will be managed by a fund professional but whether you choose UITF or mutual fund or both, you will still have the right to decide which asset class you want to put your money in a pooled fund. This is also called diversifying your portfolio.When a company is offering you their fund products, you have to know what investment class they own and choosing the funds they offer should be aligned to your investment goals and needs. Some pooled funds only own stocks or equity funds while others own bonds or bond funds. Other pooled funds own both stocks and bonds which are called balanced funds and others own short-term funds called Money-market funds.
These “fund” terms might be a little bit complicated for you to understand but trust me, you’ll be able to dub these terms as easy as chicken when you have already tried investing in pooled funds. As we all know, reading and learning is not enough. It has to be acquired by application but let’s leave this nugget of wisdom for a while. We’ll get into that after we learned all the investment vehicles. For this time, let me elaborate first on the said four specific fund categories of pooled funds.
1. Money-market funds
When you want to invest your money for a short-term, usually in a year or less, your fund manager will recommend you to put it in money-market funds. The return is lower but safer to invest in. Almost similar to what banks can offer, these funds may not defeat inflation rate but the risk it covers would nearly boil down to zero percent. Other features of money-market funds represent securities that are of high-quality and liquidity. You can purchase such fund’s share in both mutual and UITF (Which I will be discussing next) offered by brokerage firms and banks.
2. Bond funds
The instant clue to remember in these funds is just ‘debts.’ Any debt-related instruments and securities, either by corporate or government will pertain to bond funds. And when you’re looking for its growth capital, your investment timeline should be in the medium-term or at least longer than money-market funds. Bond funds will pay you through dividends that include interests from payments and price appreciation. If you want to invest in this fund, you need to have a moderately conservative risk appetite.
3. Balanced funds
A balanced fund is a combination of stocks, bonds and sometimes, money-market instruments all blended in a single portfolio. However, returns from each component in this fund have fixed set limits. It may be equal or not. One example is in the mixture of stocks and bonds. Some balanced funds may favor 50% for stocks and the other half for bonds. Others may want 60-40 or the other way around while another balanced fund wants 70-30. There are also balanced funds that offers combination flexibility but the fund manager makes sure that he stays consistent with the fund objectives.
Balanced funds are recommended to investors looking for a modest capital appreciation and has a moderate risk-taking appetite.
4. Stock or equity funds
This may already sound self-explanatory to you as stock or equity funds are funds that invests in stocks or equity securities. Almost all equity funds in the Philippines are passively managed and invested in blue-chip stocks. In these funds, the downside ‘though is that you cannot become a part-owner of the company stocks. Your objective for capital growth for equity funds should be long term or at least more than 10 years.
You may have again added learning insights as you have read the introductory part of pooled funds and its specific categories but I hope it’s not information overload on your part yet. If you still cannot understand what a pooled fund is, then don’t worry about it. You don’t need to have a thorough and in-depth study of pooled funds. Just remember that the fund manager will do all the investment job description for you. All you need to do is to determine your risk tolerance and your investment objectives. Please take note of the table because this is what I want you to memorize if you’re really into pooled funds.
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