Dos and don'ts of investing in mutual funds

Posted at 04/27/2014 9:12 AM

MANILA, Philippines – What are the risks involved in investing in mutual funds?

According to registered financial planner Paul Tiu, because of the diversity of mutual funds, it can be a mix of both low- and high-risk.

There are five types of mutual funds—bond, balanced, GS, money market, and equity.

“When you invest in mutual funds, you minimize risks and also improve your returns compared to investing in a bank,” Tiu told ANC’s “On The Money.”

Returns from mutual funds are at an average of 5 percent compared to the average bank return of 3 percent.

“The returns you get from mutual funds depend on the movement of the market,” Tiu explained.

Among the factors that Tiu said investors should consider before investing in mutual funds are the objective and risk tolerance.

To gauge if you are a low- or high-risk investor, Tiu suggests getting into the stock market first.

“That way, you will be able to feel what risk tolerance really is,” he said.

Tiu said the advantage in investing in mutual funds is that it caters to various risk profiles.

He also advises picking a fund manager who can meet these objectives and cater to the risk tolerance.

However, investing in mutual funds also requires reviewing investments and not solely relying on the fund manager.

Investors should also avoid ignoring risks, panicking, and investing according to emotions.