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.

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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.

Advantages of Getting One Type of Mutual Fund in Philippines

Below are some of what I think the advantages of getting just one type good mutual fund.

1. My investment capital will not be diluted, meaning, if the NAVPS of the mutual fund I subscribe increases, my gain will be much more higher but of course the risk is that, if the NAVPS goes down the more also is my loss. That's why I study first the funds I intend to invest in so that, I can confidently choose what type of mutual fund will fit my goal and risk appetite.

2. I don't need to "mamangka sa dalawa o tatlong ilog" which means in this case if I were to endorse mutual fund, I will have to endorse only one, the one that I invested in. So that, those who might be interested and subscribe also will likely not dilute their capital investment. Though it may sound bias nevertheless, the fund that I invested in speaks for itself in terms of performance and feature. With this logic, I and those who were encourage to invest will help increase the asset of the fund, in return will also increase the value of the NAVPS therefore, likely, the value of my share will also increase. Remember the NAVPS formula ((Asset-Liabilities)÷Outstanding Share).

3. Based on how I understand mutual fund, if I get more than one but the same type of mutual fund, I am not diversifying actually. Like say for instance, If I subscribe equity funds at company "A" and equity fund also at company "B" and the same with company "C". If the equity market goes down, likely, all of the mutual funds I subscribe in will also go down since they all invest in equity. Another is that, aside I guess from their investment strategy and fund managers, one of the reason perhaps why the same type of mutual fund is better than the other one is simply because that mutual fund has built in a good reputation and is more popular. Thus, more are interested to invest therefore increasing the asset value more compare to the other mutual fund resulting to increase in NAVPS and, finally increase also on the share value.

4. If I invest in more than one MF and since, I'm working abroad and don't have the bank account on the mutual funds I subscribe in, I will have to spend extra more on the remittance fee so as to add fund separately as, every mutual fund has different account number. I find it not very convenient at all.

By the way I invest in PDYF Click the link:  Why I Choose to invest PhilEquity Dividend Yield Fund. And, since I opened the account, to date the sales load has already been more than compensated.

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.

Different Type of Investment Vehicle

Below are some of the investment vehicle available in Philippines that I'm familiar with.

1. Savings Account - It is advise that 3-6 months of our expenses or salary should be reserve for emergency fund. Placing it in a savings account should be ideal since it's easy to withdraw incase of emergency. Though the real value may be dragged by inflation, at least we are sure that however small is the interest, it's gaining somehow and it serve the purpose. The rest should be diversified to other investment vehicle. (See: Emergency Fund, The Importance of it)

2. Insurance- This serve as a protection against uncertainty of life not for us, but for our dependents while our assets are not yet sufficient enough to cover for their needs. Now a days, Insurances offer different packages. Some offer a combination of life insurance, healthcare and investment where, after certain period in time it will yield interest, it may not be that much but still will serve the purpose plus additional benefit. (See: Insurance, Making Sense of it)

3. Real Estate - An investment that I guess expensive but worth it. We all needs a place we can call our own home whereby, should the zonal value of the property goes up at least we have the option to sell it, or perhaps rent it out later to generate passive income or it can be part of our will to be pass on to our next generation. Take note though, unless our cashflow is way more than enough to venture on property investing alone, we better just get a property for the purpose of buying ourselves our own home, this is because, gaining from property requires a lot of time moreover, the capital venture requires huge amount. Installment for downpayment and amortisation may be sufficient but it's not all that there is in a property investing. There maybe a lot of unexpected expenses that we are not aware of after buying, before handover or even when already handover. Or, should we plan to rent it out later on, the monthly rental payment may not be sufficient to cover the amortisation and other fees or worst we might not able or will have a hard time finding someone to rent the property. (See: Checklist Before Buying Real State in the Philippines)

4. Mutual Funds - The idea of mutual funds if we think of it is really simple. It’s an accumulation of funds via different people in order to come up with a lump sum amount to be invested in stocks, bonds, fixed security and others. These funds are within the care of mutual fund managers and regulated by SEC. The idea is the same as with banks, SSS, PAG-IBIG, cooperative and alikes , only that they provide different type of services and return. Depending on which company and what type of funds we are getting, the gain from it can actually be rewarding as historically, it earns way more than beating the inflation rate. Besides, earning from mutual funds are tax free. Take note though that there are certain fees such as sales load, management fees and exit fees (See: Understanding Mutual Fund Fees) which we need to understand before investing because, these will drag down our suppose gain and will add up to our loses as these are charged whether the funds are losing or gaining.

5. Stock Market - This is when we decide to put our investment in equity via our own hands. No need to pay fees such as sales load, management or exit fees. But, if we think that it's as simple as buy and sell without really knowing what we are buying or when to buy and to sell. Well, kinda but, with this kind of approach we probably are gambling. It really is not as simple as we think, we have to have an idea at least how to read the balance sheets of the companies we are interested in and how to read technical indicators. One thing I realised in stock market is that, it's not all about the company performance but also about the psychological and emotional behaviour of each and everyone involve or participants of the stock market. (See: Psychology in Stock Market)

6. Business- Probably a good source of passive income but, it requires a certain potential idea or concept where consumers are likely willing to avail or buy and, it needs perhaps a huge amount of capital to realise that idea or concept.

So far, these are the different type of investments vehicle that I'm familiar with where we can possibly diversify our investments.

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Note: These are just my own impression of those investment vehicles that I'm familiar with.