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Detail Step by step guide To invest in Mutual Funds?

A mutual fund is an investment vehicle that captures money from investors, places it in a common stock market and invests it in a diversified way in a series of instruments such as stocks, bonds and other assets. In the Peruvian financial system, most banks offer this product, whose operations are quite simple.

The Mutual Funds and the managers that administer them are conditioned by the norms established in a legal body that regulates these investment instruments, there must also be an operating regulation of the mutual fund and the specific provisions promulgated by the Superintendence of Securities and Insurance. Therefore, the Superintendency is empowered to inspect, without any restrictions, all the books, portfolios and documents of the mutual fund management companies.

Each fund defines its own investment policy that is included in the Internal Regulations of the Mutual Fund and is approved by the Superintendency of Securities and Insurance. From this information, the investor has the ability to make investment decisions in the fund that is adjust to your needs.

Steps to invest in a Mutual Fund

1) To invest in a Mutual Fund? the first thing you should do is inform yourself through the General Fund Administrators? or their agents for the commercialization of quotas and on their web pages, about the types of funds they have and their general characteristics, such as:

  • Fund classification according to CMF regulations.
  • Remuneration of the managing company.
  • Commissions at the time of making the investment or the redemption of the same.
  • Maximum installment redemption payment terms.
  • Background object.
  • Type of investor to whom it is directed.
  • Investment policy.
  • Inherent risks of investments.
  • It is especially important that the management company’s fees and remuneration be reported, since there may be cost differences between funds of the same type.

2) When it has made the decision on the Fund in which it will invest, the administrator must make the internal regulations of the fund available to it and provide it with the respective informative brochure. Then, you must sign the General Fund Agreement.

3) By signing the investment request, the contract is formalized and the conditions established by the instrument are acknowledged. You will receive a confirmation of the operation (proof of contribution).

4) When a person makes contributions to a Fund, he becomes a participant in it, and these contributions are expressed in fund shares, which represent participation in its assets, and there may be different series of shares for the same fund. , all of equal value and characteristics, which must be established in its internal regulations.

5) The investment is made at the time the administrator receives the contribution, which can be made in several ways:

  • Cash or bank sight voucher.
  • Check.
  • When the corresponding transfer is completed, in the case of secondary market transactions.
  • Charge to the current account.
  • Electronic transfer.

6) When your investment is already in force, you can track it by reviewing the path of the share value of the fund (s) or the series of shares of the same fund, in which you invested. This value is published on the website of this service.
Along with this information, you also have access to the Financial Statements, the investment portfolio and all the information that the fund sends to the CMF.

7) Finally, when you decide to withdraw money from the fund, you will talk about “redemption of your quotas”, for which you must send a “redemption request” to the Administrator to make it effective.
In the case of redemption systems and payment of quotas that represent significant daily amounts of the total assets of the fund, they must be established in the internal regulations of the fund. For these purposes, daily significant amounts shall be understood as those determined by the internal regulations.

Mutual Fund Profitability

The profitability will depend on the evolution of the underlying to which the mutual fund is linked , as a general rule the greater the investment risk we obtain the greater profitability, a very common mistake is to think that fixed income always provides profits and this is not always the case, since It will depend on the market prices of the debt, on the evolution of interest rates and on the management capacity of the fund administrator. Investing in mutual funds does not guarantee future profitability (except for guaranteed mutual funds), its profitability is mainly generated by 2 factors:

  • Capital gain or loss: is based when the assets that make up the mutual fund change in value (generating gains or losses)
  • Dividend and interest income: refers to the profits obtained in a mutual fund through the interest or dividends paid by the instruments they hold.

Investment diversification

The main characteristic of a mutual fund is the diversification of the financial values ​​in which it is invested. On the other hand, the union of money contributed by the participants allows the small investor access to products that were not previously available to them. It is a product without expiration and with great liquidity.

Mutual Fund Fees

When a person becomes a participant in a Mutual Fund , their contributions are expressed in installments. When an investor makes a contribution to a Mutual Fund, he is acquiring quotas from that Mutual Fund.

The quota is calculated daily, through it we can assess the profitability of the fund, when a contribution is made to the fund, it is calculated in quotas that have a value. The calculation is made as follows: if we make a contribution of $ 10,000, the day the fee is $ 100, then we obtain $ 10,000 / $ 100 = 100 installments with a value of $ 100, after a while we want to rescue our money, at that time the fund has obtained a return of 8%, which is reflected in the value of the fee that will be $ 108, when withdrawing our money we obtain 100 fees * $ 108 = $ 10,800. With negative returns it is the same process.

In this way, a person can always know how much money they have accumulated in a Mutual Fund simply by multiplying the number of quotas they have by the corresponding value of the quota.

In addition to investing in individual stocks and bonds, many investors have the option of leveraging mutual funds to create their retirement savings or other long-term savings goals. This is not the best option for those interested in short-term trading, but it can help you diversify your investments, maintaining a low cost structure and a specific objective. If you want to invest in mutual funds, take time to research and choose the right option. 

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