Are you fond of funds?

There are two ways to invest in paper assets. 

1. By purchasing the financial instrument directly – e.g buying bonds, stocks, and other instruments

2. By purchasing funds – i.e. buying shares in the fund companies that invest in these financial instruments.

To the regular Juan, direct purchase is more salient. He can say, “I am a part owner of Company A.” after he buys shares of Company A, or “Company A owes me.” after he buys bonds of Company A. 

So why settle for funds and not just go straight? Why pay management fees if you can directly buy the instruments?

A fund is a pool of money that is allocated for a specific purpose. It is invested and professionally managed in order to generate returns for its investors.

Let’s now answer the earlier question why settle for funds instead of directly investing by enumerating the reasons.

1. Lower initial investment. With a very low amount, one can already start investing in funds. For some funds, it is P1,000 or even lower. 

2. Diversification. This could be the biggest benefit because for a small sum of money, you can already spread your investment in various assets, compared to direct investing where you have to purchase each and every instrument with several minimum investment amounts that would not allow you diversification with just a thousand pesos or so. 

3. Professional management. Even if everyone needs to invest in paper assets, not everyone is equipped to pick the right instruments for their needs. Think of it as relying on your doctors and lawyers to give you the right prescription for your medical and legal concerns.

4. Less time and effort. Investing in professionally managed funds eliminates the need for you to allocate resources to research and analyze individual assets in managing your portfolio. 

A few days ago, I had the chance to have a conversation with Pat Alvarillo, the head of the Retail Accounts Department of the Trust and Investments Group of BDO. In our conversation, she debunks some misconceptions about investing, namely:

1. Investing is only for the rich.

2. Investing is for pros and is hard.

3. Investing is not accessible. 

In the Philippines, you can invest in two general categories of