Mutual Fund Talk

Mutual fund? What?

According to Investopedia, Mutual Fund is : 

'An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by fund managers, who invest the fund's capital and attempt to product capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.'

In general, mutual funds are divided into 3 categories :

• Equity Fund (Focus in stocks, higher risk, ~8% return)
• Bond Fund (Focus in money market, debt securities, risk and return are lower, ~3% return)
• Balanced Fund (In between of Equity and Bond Fund)

Mutual fund enables access to professionally managed, diversified portfolios of securities (equities/bond etc) and is particularly attractive to investor with small capital & minimal investing knowledge. An initial investment of RM1000 is enough to start his/her investment journey. 

There are a lot of mutual fund managers in Malaysia, for instance Public Mutual, Eastspring Investment Berhad, Kenanga Investment Berhad and many more. 


A good investment?
Investing in mutual fund can be profitable, provided with proper strategies, mindset, fund selection and competency of mutual fund consultant -> the most important !!! 


Investment Strategies ...
The two most important strategies in mutual fund are :

• Dollar Cost Averaging 
• Purchase monthly with a fix amount of dollar (not quantity) to leverage risk of market fluctuation.
• For instance with a fix amount of RM100, automatically one will get more units during oversold market and get less units during overbought market.

• Fund Switching  
• Switching between equity and bond fund at the right time (Bull market -> Bond to Equity, Bear Market -> Equity to Bond) will boost return % tremendously.
• Chart below is the actual performance of Public Bond Fund (PBF)& Public Regular Saving Fund (PRSF), take note that PRSF suffers massive loss ~33% in 2008 while PBF left unscratched at the same time. A good mutual fund consultant should be able to advice his/her client to switch from PRSF to PBF in 2008.
• Chart to the right shows wealth growth comparison with/without switching, with initial capital of RM10,000.

Avoids ...

• Lump sum one time investment 
• Avoid one lump sum investment without dollar cost averaging, we have no idea if the market is already at the peak or bottom.

• Incompetent Mutual fund consultant  
• Some of the consultants are only interested in sale commission and is not committed to grow his/her client wealth growth
• Be very careful when choosing your consultant

What about myself?
As I am able to grow my wealth at least 30% from stock market consistently, my investment in mutual fund is minimum and only limited to :

• Employee Provident Fund (EPF) approved mutual fund, the goal is to seek for higher annual return (>6%)  
• Private Retirement Fund (PRS), the main intention is for income tax avoidance, the Malaysia government allows tax exemption up to RM3000  

However I am a true believer of mutual fund, it is a good investment vehicle that helps individual who has minimum fund, zero investing knowledge or has no time to become a self-directed investor for wealth accumulation.

Maybe someday I will stick solely to mutual fund when I am getting tire of FA/TA analysis, stock selection or reading financial reports...

Happy Investing !!!