Why I choose to Invest in PhilEquity Dividend Yield Fund

From the blog "understanding mutual funds fees" it was mentioned that the formula for NAVPS is;

((Assets - Liabilities))÷outstanding share.

Given this formula, part of the fund assets are the accumulated amount invested by the different people interested on the particular fund. So, given this fact, the more people interested and invest on the fund, the increase also in the fund asset value, thus, likely the NAVPS also increases.

One of the reason, why i choose to invest in PhilEquity Dividend Yield Fund is based on this logic. The fund is still young, more and more will invest in the future or, I think since inception many investors were and still keen to invest on this fund, probably because of its feature — which is to invest only in companies that regularly give dividends, meaning companies that have good income for them to afford to share part of the profit to their share holders (the so called Dividends) — plus the fund good management and the market good performance. Thus, increasing the asset value resulting in increase also in the fund NAVPS. This is probably one of the reason why in just few months the fund grows by 20 percent plus already.

Applying this logic, I encourage you to invest on this fund while the NAVPS is still cheap. Take note though on the fees involve. The earlier you get in or invest, the likely your share will have more room to increase in value.

Consider this, if I have PHP20,000 now and is able to subscribe or invest at 1.19000 NAVPS value, the total share that I can subscribe is 16,218 factoring sales load of 3.5%. If after few years the NAVPS becomes 5.000, assuming that since the time I invested I did not add up. The value of my 16,218 share will be PHP81,090. From 20K with the same amount of share become 81K.

But of course, its up to you. Aside from fees which was discuss in my other blog (understanding mutual funds fee) there are risk involve. NAVPS value may not increase as expected, in fact it might also go down. I cannot guarantee and also the fund has no years of historical evidence that it is performing. But, likely the once who manage PEFI are the same group of people who manage PDYF. If they are able to increase NAVPS for PEFI by 3000% plus to date since inception, I guess likely, they can do the same with PDYF but it's not a guarantee though.

All I can guarantee is that if we put all our money in the bank, inflation will eat up its value. Our 100K today will increase a bit in few years but, it is not enough to beat inflation. 

So, for me I better take the risk for the chance to beat inflation plus interest earnings.

-End-

Disclaimer: Study the fund first and the fees underlying it. Invest at your own risk and I'm not saying that investing in mutual funds is the only way, there are other of course.

Understanding Mutual Funds Fees

Depending on the company and fund we plan to invest, the percentage of fees varies:

1. Sales Load- Based on the fund I invested, the applicable sales load is 3.5%, it will go down a bit once the total investment amount reach 100K and so on. This means that by default, starting from my initial investment up to all my additional investment, the actual amount creditable for NAVPS  subscription will drop by 3.5%.

Say, our initial investment is PHP20,000 and the NAVPS by this time is around 2.000. Because of the 3.5% sales load, instead of acquiring a total of 10,000 subscription, it will drop to 9,650. This process will be the same on all our additional investment irregardless whether the fund is losing or gaining. 

In conclusion, if we sum up all our investment capital, the initial value will actually drop by the sales load rate charge and it also means that our capital will need to work 3.5% more for it to just break even.

This is just one of the factor that need to be considered before investing in mutual funds. The question I guess that we need to ask ourselves before we invest on a certain fund is whether it increases historically to a certain percentage where the sales load is way more than just being compensated.

2. Exit Fees - In the mutual fund that I invested, it charge 2% if I withdraw an amount within 1 year and 1.5% after 1 year to 2 years. Only after the 2nd year, if I plan to withdraw from my investment I won't be charge for the exit fee.

Should it happen that the fund is losing and we need to withdraw the amount within the two years of holding period, we're still going to be charged. That exit fee will add up to our loses.

3. Management Fee - The NAVPS value is derived from the formula:

 (Assets - Liabilities) ÷ outstanding shares ; this is calculated everyday. The management fee based on the mutual fund I invested is calculated as part of the liabilities. So, if the say they charge 1.5% management fee annually, in mathematical terms it can be expressed as: 

(Assets - (All other Liabilities+1.5% of Assets))÷outstanding shares. 

This is charged everyday irregardless whether the fund is losing or not but, I guess we won't feel this fee that much since it's part of the NAVPS computation where subscription is also based on.

Bottom line: Understand these fees before investing, these are usually shown in the mutual fund fact. By doing so, we can decide properly which type of fund we're going to subscribe that can possibly compensate these investment fees plus earnings .Take note though, I haven't factored in the effect of inflation, which is one or perhaps the most important factor in choosing the right mutual fund.

Disclaimer: This may not necessarily applicable to all mutual funds available in Philippines, this is based on the fund I invested which is from Philequity, the Dividend Yield Fund.