Not many people know that there are types of Mutual fund, I will just name 3 just to simplify things. So here are the 3 types:
1. Equity fund
2. Bond fund
3. Balanced fund
What is an equity fund?
Equity funds are the high risk stocks, these are the stocks with so many movements, really up and down in the charts. Please note that these stocks are also the good type (high grade), for example, we have Ayala here, SM, BDO, BPI etc., these are the big companies.
Of course, with high risk, you can get high returns and since it’s called high risk, you may also lose big here. (But with proper financial education, there is nothing to be worried)
This is the fund type that would make money for you, returns from this fund may be somewhere at 12% or even higher a year! (Depends on the markets)
So if you plan to make money, choose this fund, this is ideally for people who still have the capacity to work or make money.
What is a Bond fund?
Bond funds, from the word bond (in finance) means to lend something financially, so when you invest in bond funds, you are actually lending your money and since you are lending your money, you will earn interest.
Interest in the bond funds, unlike the equity, are very conservative. Interest per year in the bond funds may reach somewhere around 5% more or less. (I’ve seen it grown up to 10% though)
Bonds are mostly from government securities and corporate securities.
It so conservative that it rarely goes negative in returns. Back in 2008 when the global financial crisis erupted, the bonds in the Philippines had a return of 2%. Yes! Positive 2%, so if you have invested in the bonds back in 2008, you still earn money.
Bonds are ideal for our retiring friends, why? Because in the bonds, it rarely goes down, so you can be confident that money still grows even if you have retired.
What is a Balanced fund?
Balanced funds are just combined Equity and Bond fund, so the earnings here are not as much as the equity and the losses are not much as the equity as well. These are ideally for people who are not willing to take so much risk in investments.
In our practice though, we do not go for balanced funds, we balance them ourselves by having 1 equity account and 1 bond account. The reason for this, in worst case scenarios, if my equity losses, my bonds does not, so I still have money. In balanced funds, normally if the equity goes into negative, the balance funds does as well.
So in summary:
Equity funds - will make more money for you because of its high risk profile. The higher the risk, the higher the return.
Bond funds - this will keep your investment afloat but is conservative.
So which is best? Everything, it all depends on your risk intake and purpose.
Have a blessed journey!
God bless!
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