How Mutual

Funds work?
 What is
Mutual Fund?

Company that Managed by a

professional Mutual funds
pools money
investment can be open-
from investors
manager who ended or close-
and invest in
buys and sells ended.
portfolios.
securities.
 Mutual Funds
Philam Bond
Fund, Inc.

Sunlife Prosperity
Fund, Inc.
 Open-ended

Shares are issued in the fund

or sold back to the fund
whenever anyone wants them.

 Close-ended
Only a certain number of shares
can be issued for a particular fund
and can be only sold back when
the fund itself terminates.
 Three basic types of
investment companies:

Open-end Company Close-end Company Unit Investment Trusts

(UITs)

Make one time public

Sell fixed numbers of
offering of only
Also known as shares at one time
specific, fixed no. of
Mutual Fund. that later trade on a
redeemable
secondary market.
securities called
“units”.
 Unit Investment Trusts
(UITs)

BDO ESG Equity Fund

(BDO Unibank, Inc.)

PNB Phil-Index Tracker

Fund
(Philippine National Bank)
Exchange-Traded Fund
(ETFs)
 A type of investment company that aims to
achieve the same return as a particular market
index.

 They can be either open-end companies or

UITs but are not considered and permitted to
be called mutual funds.
ETFs Companies

First Metro Philippine Equity

Exchange-Traded Fund
(FMETF)
Hedge Fund
 A general non-legal term used to describe private,
unregistered investment pools that traditionally
have been limited to sophisticated, wealthy
investors.

 Numerous of regulations doesn’t apply unlike in

the mutual funds.
Hedge Fund Companies

Kickstart PH Morningtide Capital

Funds of Hedge
Funds
 A relatively new type of investment product,
are investment companies that invest in hedge
funds.

 Some, but not all are registered in SEC and file

semi-annual reports.
Characteristics of
Mutual Funds
 Investors purchase mutual fund shares from its fund
1 itself instead of other investors in secondary market.

2 Mutual funds are redeemable.

The price that the investors pay is the fund’s per

3 share Net Asset Value (NAV) plus the imposed fees
of the funds.
4 Generally create and sell new shares to
accommodate new investors.

5 Professional Management
“investment advisers”

6 Investment Portfolio is created.

MUTUAL FUNDS
(ADVANTAGES &
DISADVANTAGES)
PRESENTED BY: KYLA BASCO
FROM: PCBET-22-501A
 ADVANTAGES
 Professional Management—Professional money managers
research, select, and monitor the performance of the securities the
fund purchases.
 Diversification—Diversification is an investing strategy that can
be neatly summed up as “Don’t put all your eggs in one basket.”
Spreading your investments across a wide range of companies and
industry sectors can help lower your risk if a company or sector
fails. Some investors find it easier to achieve diversification
through ownership of mutual funds rather than through ownership
of individual stocks or bonds.

16
 Affordability—Some mutual funds
accommodate investors who don’t have a lot of
money to invest by setting relatively low dollar
amounts for initial purchases, subsequent monthly
purchases, or both.

 Liquidity—Mutual fund investors can readily

redeem their shares at the current NAV—plus any
fees and charges assessed on redemption—at any
time.

17
DISADVANTAGES
 Costs Despite Negative Returns—Investors must pay sales
charges, annual fees, and other expenses (which we discuss
in detail on page 13) regardless of how the fund performs.
And, depending on the timing of their investment, investors
may also have to pay taxes on any capital gains distribution
they receive—even if the fund went on to perform poorly
after they bought shares.
 Lack of Control—Investors typically cannot ascertain the
exact make-up of a fund’s portfolio at any given time, nor
can they directly influence which securities the fund
manager buys and sells or the timing of those trades.

18
 Price Uncertainty—With an individual stock, you can
obtain real-time (or close to real-time) pricing information
with relative ease by checking financial websites or by
calling your broker. You can also monitor how a stock’s
price changes from hour to hour—or even second to
second. By contrast, with a mutual fund, the price at which
you purchase or redeem shares will typically depend on
the fund’s NAV, which the fund might not calculate until
many hours after you’ve placed your order. In general,
mutual funds must calculate their NAV at least once every
business day, typically after the major U.S. exchanges
close.

19
DIFFERENT TYPES
OF FUNDS

Prepared by Rochelle-An D. Barrio

Investors have a thousand of choices. The first step to successful investing
is to figure out the financial goals and risk tolerance. Below are the main
categories of mutual funds;

• Money Market Funds

• Bond Funds or also called as Fixed Income
• Credit Risk
• Interest Rate Risk
• Prepayment Risk
• Stock Fund or also called as Equity Funds
MONEY MARKET FUNDS
• A money market fund is a type of mutual fund that invests in
high-quality, short-term debt instruments, cash, and cash
equivalents.
• Though not quite as safe as cash, money market funds are
considered extremely low-risk on the investment spectrum.
• A money market fund generates income (taxable or tax-free,
depending on its portfolio), but little capital appreciation.
• Money market funds should be used as a place to park money
temporarily before investing elsewhere or making an anticipated
cash outlay; they are not suitable as long-term investments.
BOND FUNDS
• A bond fund, also referred to as a debt fund, invests primarily in bonds
(government, corporate, municipal, convertible) and other debt
instruments, like mortgage-backed securities (MBS), with the primary
goal of generating monthly income for investors.
•
Bond funds provide instant diversification for investors for a low
required minimum investment.
•
Due to the inverse relationship between interest rates and bond prices,
a long term bond has greater interest rate risk than a short-term bond.
CREDIT RISK
• Credit risk is the possibility of losing a lender takes on due to the
possibility of a borrower not paying back a loan. 
• Consumer credit risk can be measured by the five Cs: credit history,
capacity to repay, capital, the loan's conditions, and associated
collateral.
• Consumers posing higher credit risks usually end up paying higher
interest rates on loans.
INTEREST RATE RISK
• Interest rate risk is the potential that a change in overall interest rates
will reduce the value of a bond or other fixed-rate investment:
• As interest rates rise bond prices fall, and vice versa. This means that
the market price of existing bonds drops to offset the more attractive
rates of new bond issues.
• Interest rate risk is measured by a fixed income security's duration,
with longer-term bonds having a greater price sensitivity to rate
changes.
• Interest rate risk can be reduced through diversification of bond
maturities or hedged using interest rate derivatives
PREPAYMENT RISK

• Prepayment risk is the risk involved with the premature return of

principal on a fixed-income security.
• When prepayment occurs, investors must reinvest at current market
interest rates, which are usually substantially lower.
• Prepayment risk mostly affects corporate bonds and mortgage-backed
securities (MBS)
• Prepayment risk can stack the deck against investors by making
interest rate risk one-sided.
STOCK FUNDS
• It’s a type of investment fund that invests chiefly in stocks. Some
stock funds also hold bonds and cash but most allot at least 80% of the
portfolio's assets to stocks. They’re run by professional money
managers, who invest the fund’s capital with the hope of making gains
for their investors.
Reference:

• https://www.investopedia.com/terms/b/bondfund.asp
• https://www.investopedia.com/terms/c/creditrisk.asp
• https://www.investopedia.com/terms/i/interestraterisk.asp
• https://www.investopedia.com/terms/p/prepaymentrisk.asp
• https://capital.com/stock-fund-definition
• https://www.investopedia.com/terms/m/money-marketfund.asp
HOW TO BUY AND
SELL SHARES
PREPARED BY:
BULOS, ERICKA E.
THINGS TO
CONSIDER:
• Determine your INVESTMENT GOAL
• How much to invest?
• Determine your time horizon
• Research about investment company
• Determine what type of investor you are
HOW TO BUY AND SELL SHARES:

• You can purchase shares in some mutual funds by

contacting the fund directly
• Other mutual funds shares are sold mainly through
brokers, banks, financial planners, or insurance agents.
• All mutual funds will redeem (buy back) your shares
on any business day and must send you the payment
within seven days.
 B S
U E
Y L
L

YOU BROKER MUTUAL YOU

BROKER
FUND
MUTUAL FUND PROVIDERS:
HOW FUNDS CAN EARN
MONEY FOR YOU
• DIVIDEND PAYMENTS
• CAPITAL GAINS
DISTRIBUTION
• INCREASED NAV
YEAR 2010
NAVPS PHP3.12
 
AMOUNT PHP10,000
TO BE
INVESTED
No. of shares =

=3,205 SHARES

YEAR 2019
NAVPS PHP8.37
Amount to be invested = No. of
shares X NAVPS
=3,205 X 8.37
=PHP26,825.85