Understanding Mutual Funds

Mutual Fund is an open-end fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with stated set of objectives. The assets are then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments. People who buy shares of a mutual fund are its owner or shareholders. For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will depend on the prevailing Net Asset Value Per Share (NAVPS).

What is NAVPS?

Investing in Mutual Funds is similar to buying shares of a company. Your share has a specific value which will vary from day to day. The term used to determine the value of your investment in Mutual Funds is referred to as Net Asset Value Per Share (NAVPS), NAVPS is calculated daily at the end of trading day, so the price of your investment changes from day to day. 

NAVPS = Total Value of Fund Asset - Liabilities

Offering Price

How is the number of shares computed?

To compute for the number of shares bought, simply divide the investment amount by the offering price. Offering Price is equivalent to NAVS plus applicable sales charge.

Basic Type of Mutual Funds  in the Philippines 
(According to Investment Objectives)

1. Bond Funds - invest primarily in bonds such as Treasury Notes issued by the Philippine Government and commercial papers issued by reputable companies. Having a full basket of only fixed-income securities, bond funds provide capital preservation while maintaining a conservative stance in terms of asset allocation.
2. Equity Funds (Stock Funds) - invest primarily in shares of stock issued by Philippine corporations and listed on the Philippine Stock Exchange.
3. Balanced Funds - invest in both shares of stock and debt instruments. It is a type of fund that is even more diversified in terms of classes of assets in its portfolio is the asset allocation fund. It may invest in practically all types of securities - depending on what the fund manager deems as approriate for the times. 
4. Money Market Funds -  invest purely in short-term (one year or less). May be diversified or specialized by the type of money market instrument (prime commercial paper, short-term government securities, repurchase agreements, etc.                  

PESOS & SENSE EXPLAINS: MUTUAL FUNDS