http://www.pse.com.ph/html/InvestingInPSE/investing_pse.html

WHAT ARE STOCKS?  SECURITIES?

Stocks are shares of ownership in a corporation. When you become a stockholder or shareholder of a company, you become part-owner of that company. Securities, on the other hand, are proof of one's ownership or indebtedness in a company. Examples of securities are treasury bills and commercial papers, which are considered as short-term and are traded in the money market; and stocks and bonds, which are long-term and traded in the capital market. Securities are easily bought and sold in the stock market.

WHAT ARE THE TYPES OF SECURITIES THAT I CAN BUY IN THE STOCK MARKET?

Most of the issues listed in the PSE are common stocks. Other types of securities such as preferred stocks, warrants, PDRs and bonds are also traded.

1. Common Stocks  -   These are usually purchased for participation in the profits and control of ownership and management of the company. Holders of common stocks have voting rights. They are also entitled to an equal pro rata division of profits without preference or advantage over another stockholder. However, they have the last claim on dividends and are the last to collect in case of corporate liquidation.

2. Preferred Stocks  -   Its name is derived from preference given to the holders of these stocks over holders of common stocks. Holders of preferred stocks are entitled to receive dividends, to the extent agreed upon, before any dividends are paid to the holders of common stocks. However, preferred stocks usually have a specified limited rate of return or dividend and a specified limited redemption and liquidation price.

3. Warrants  -   A corporation can also raise additional capital by issuing warrants. A warrant, normally issued on a detachable basis, allows its holders the right, but not the obligation, to subscribe to new shares at a set price during a specified period of time. It is usually provided free of charge and traded separately in the securities market.

4. Philippine Deposit Receipts (PDRs)  -   A PDR is a security which grants the holder the right to the delivery or sale of the underlying share, and to certain other rights including additional PDR or adjustments to the terms or upon the occurrence of certain events in respect of rights issues, capital reorganizations, offers and analogous events or the distribution of cash in the event of a cash dividend on the shares. PDRs are evidences or statements nor certificates of ownership of a foreign/foreign-based corporation. For as long as the PDRs arenot exercised, the shares underlying the PDRs are and will continue to be registered in the name of and owned by and all rights pertaining to the shares shall be exercised by the issuer.

5. Small-Demominated Treasury Bonds (SDT-Bonds)  -   The SDT Bonds are long-term and relatively risk-free debt securities issued by the Bureau of Treasury (BTr) of the Republic of the Philippines. The bond is a certificate of indebtedness of the Republic of the Philippines to the owner of the SDT-Bonds.

WHERE CAN I BUY OR SELL SHARES OF STOCKS AND/OR BONDS?

In the Philippines, the only operating stock exchange is the Philippine Stock Exchange (PSE). Its main function is to facilitate the buying and selling of stocks and other securities through its accredited trading participants.

The PSE has two trading floors - PSE Centre in Ortigas, Pasig City and PSE Plaza in Ayala, Makati City - where trading participants trade daily - from 9:30 a.m. to 12:10 p.m. except Saturdays, Sundays, legal holidays and days when the Central Bank Clearing Office is closed.

HOW ARE SHARES AND SDT-BONDS BOUGHT OR SOLD?

If you wish to buy shares of stocks or SDT-Bonds, you must have a stockbroker who will do this for you. A stockbroker is a person or a corporation authorized and licensed by the Securities and Exchange Commission (SEC) and PSE to trade securities.

Investing Procedures:

1. Choose a stockbroker. The PSE has a complete list and information about all its trading participants who are authorized and qualified to trade either equity or debt securities for you. This list is also available on the Exchange's website and the PLDT directory's Government and Business listings yellow pages under the category of stock and bond brokers.

2. You shall be required to open an account and fill-out a Reference Card and to submit identification papers for verification. The stockbroker will then assign a trader or agent to assist you in either buying or selling any listed security. Discuss with the trader what stocks to buy or sell.

3. Give the order to your broker/trader, and then get the acknowledgement receipt.

4. For equity transactions: Deliver the Stock Certificate if you are selling or pay within the settlement date (3 days from date of transaction) if you are buying. Some brokers may require you to pay with post-dated checks upon ordering.

For SDT-Bonds transactions: Selling investors must open a RoSS account under his broker's sub-account and instruct his bank-underwriter to transfer the share to this account. Buying investors must also open an account with a BTr accredited bank and pay the appropriate amount of transaction to the settlement bank on the trade date.

5. You shall receive from your broker either the proceeds of sale your stocks (after 3 days for equities and on the date of trade for SDT-Bonds) or proof of ownership of stocks you bought (confirmation receipt and invoice). If you wish to have a physical certificate of the equities you bought, just give instructions to your broker and pay the required upliftment fee. Buyers of SDT-Bonds will only be given a confirmation slip in lieu of the bond certificates.

You can purchase shares of stock either through IPO (Initial Public Offering) or through the open market. Shares sold through IPOs are offered for the first time to the public by the company (primary market) whereby proceeds of the sale go directly to the company. Shares of listed or publicly traded companies are bought during trading (open market). These shares have since been transferred from one owner to another (secondary market) and proceeds of the sales do not go directly to the company but to the owners of the shares.

The Trading Cycle

All equity transactions, whether buying or selling has a settlement period of T+3 (trading day + 3 working days). This means that a seller should be able to deliver the stock certificate, if any, to his broker and the buyer must have paid the cost of transaction to his broker within 3 working days after the trade was done. Historically, settlement was done manually (27-day cycle). With the advent of scripless trading wherein settlement is done via the book-entry-system (thru Philippine Central Depository or PCD), transactions are settled on the third day after trade date. Under this system, the investor has the option to hold on to his certificate (uplift) or deposit (lodge) this certificate in PCD through his broker-participant account.

SDT-Bonds transactions, however, are settled on the same day when the trade is transacted (T+0). There shall be no physical transfer of bond certificates. The transfer of securities shall be conducted electronically by the BTr's Registry of Scripless Securities (RoSS). On the other hand, cash settlement will be coursed through the PSE's two settlement banks namely, Equitable-PCI Bank and Rizal Commercial Banking Corporation.

WHAT IS THE MINIMUM AMOUNT NEEDED TO INVEST IN THE STOCK MARKET?

Equity trading is done by board lot or round lot system. The Board Lot Table determines the minimum number of shares one can purchase or sell at a specific price range. Therefore, the minimum amount needed to invest in the stock market varies and will depend on the market price of the security as well as its corresponding board lot. Prices of stocks move through a scale of minimum price fluctuations.

On the other hand, the minimum amount of SDT-Bonds that an investor can buy if PhP 5,000.00.

Board Lot Table:

PRICETICK SIZE

LOT SIZE

        0.0001   to   0.0099         0.0001 1,000,000      

        0.0100   to   0.0490         0.0010 100,000      

        0.0500   to    0.2490         0.0010 10,000      

        0.2500   to    0.4950         0.0050 10,000      

        0.5000   to    4.9900         0.0100 1,000      

        5.0000   to    9.9900         0.0100 100      

      10.0000   to   19.9800         0.0200 100      

       20.0000  to   49.9500         0.0500 100      

       50.0000  to   99.9500         0.0500 10      

     100.0000  to 199.9000         0.1000 10      

      200.0000 to 499.8000         0.2000 10      

      500.0000 to 999.5000         0.5000 10      

      1000.000 to 1999.000         1.0000 5      

      2000.000 to 4998.000         2.0000 5      

      5000.000 to UP         5.0000 5      

 

The following securities fees and taxes (subject to change) are levied on the investors:

FEES/TAXES SELLER BUYER

a.  Brokerage Commission (maximum of 1.5% of transaction cost + 12% VAT)

X X

b.  SCCP Fee of 0.0001 x value of transaction

X X

b.  Transfer Fee of Php 100.00 + 12% VAT

  X

d.  Cancellation X  

Fee of Php 20.00 + 12% VAT

e.  Stock Transaction Tax (½ of 1% value of transaction in lieu of capital gains tax)

X  

 

Illustration:

Buying Transaction:Mr. X wishes to buy a stock whose market price is P10.00 and with a par value of P1.00. Based on the Board Lot Table, the minimum number of shares he can buy at a regular transaction is 1,000 shares (a). In this case, the amount that he needs is about P10,000.00 plus charges. His required cash outflow will be as follows:

Market price/share

P 10.00

Minimum number of shares *

x 1,000

  P 10,000.00

Broker's Commission (1.5% + 12% VAT)

+ 168.00

Transfer Fee + 12% VAT

+ 112.00

SCCP Fee + 1.00

Total Cash Outlay

P 10,281.00

 

Selling Transaction:Mr. Y wishes to sell a stock whose market price is P5.00 and with a par value of P1.00. Based on the Board Lot Table, the minimum number of shares he can sell at a regular transaction is 1,000 (b). In this case, the proceeds of the sale is about P5,000.00 less charges. His cash inflow will be as follows:

Market price/share

P 5.00

Minimum number of shares

x 1,000

  P 5,000.00

Broker’s Commission (1.5% + 12% VAT)

- 84.00

Stock Transaction Tax

- 25.00

PCD and SCCP Fees

- 0.50

Cancellation Fee + 12% VAT

- 22.40

Net Cash Receivable

P 4,868.10

HOW CAN I PROFIT IN THE STOCK MARKET?

Investors can profit in the stock market thru any or a combination of the following;

Capital Gains  -   These are profits made due to an increase in the market price of a stock from the buying price.

Cash Dividend  -   A dividend given to shareholders in the form of cash. It is computed by multiplying the number of shares held by the cash dividend rate declared.

Stock Dividend  -   A dividend given to shareholders in the form of additional stocks. It is computed by multiplying the number of shares held by the percentage of the stock dividend declared.

Stock Rights  -   Stock rights offering is the option given to the present shareholders to buy additional shares of stock at a price lower than its market price.

IS THERE ANY RISK INVOLVED IN INVESTING?

Yes, since risk is always a part of any investment. And because stock investment is the most volatile, a better attitude would be to limit and manage your risk. A maximum level of gain or loss should be set and calculated decisions should be made when this level is reached.

DO I NEED TO KEEP TRACK OF MY INVESTMENT?

Yes! Having placed some amount in stocks, you should spend some time and effort in studying your investment. You should keep track of the stock price and follow closely the developments of the company. This way, you are able to foresee possible gains or losses that will guide you in making sound and wise investment decisions.

Daily quotations of stock prices can be obtained from your stockbroker or from all leading newspapers.

You may also get information from our official website: www.pse.com.ph or from the PSE-Public Information and Assistance Center (PIAC) at telephone numbers 688-7602 to 03.

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Kabuhayan Mutual Fund gidj2006-eche@yahoo.com.ph

For most of the Filipino working class, the usual scenario is that you spend most of your time working your ass off.

Every day, you wake up six in the morning; eat a quick breakfast of instant noodles, and after that, you spent 30 to 45 minutes commuting to work. And then you spend most of your day in the office. Sometimes you may do routine office tasks, while sometimes you may be out doing fieldwork or sales work.

And then finally, you get home early in the evening. Already feeling dog-tired to do anything else, you doze off while watching your favorite soap opera on TV. And then you wake up again the next morning doing the same things.

You probably do this every day of your life since you graduated from college. Sometimes, you may feel the routine is becoming too boring and wish there is something more to it.

However, even if your job does not give you fulfillment, the best thing about it is that you earn money. It may not be big, but you earn and may have little savings set aside.

You may have saved up 50,000 to 500,000 pesos in your Bank of the Philippine Islands savings account from the years of working for different companies so that someday you would have money for a new home, a new car, your child’s education, or for your retirement.

But the problem is that there is an ongoing economic recession. You know that with the Philippine’s economy and the rising inflation, the value of your savings five to ten years from now won’t able you to buy your dream, even if it is placed in a time deposit.

Or even if you placed your savings in an insurance plan or college educational plan. You might have heard of College Assurance Plan (CAP) which went bankrupt because they can’t commit to the yield they promised their investors.

Luckily, there is such a thing as mutual funds in the Philippines. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other financial securities. The mutual fund will have a fund manager that trades the pooled money on a regular basis. Currently, the worldwide value of all mutual funds totals more than US$26 trillion.

In the old days, you can only settle for money market, time deposit or savings account. These financial instruments do not give you as much return or profit for your hard earned money or savings to

overcome inflation or the drop in purchasing power of the Philippine peso. You may try investing directly in the Philippine Stock Exchange. However, to be successful, you need good and reliable information to pick the right stocks to buy.

But now - since 1995, a couple by the name of Lilia and Leo Clemente, who were successful fund managers in Wall Street, New York, set up an investment company. They called it, “The Mutual Fund Management Company of the Philippines (MFMCP)” and together with top honchos from San Miguel Corporation Retirement Fund, Pag-Ibig Mutual Fund, Retirement Separation Benefits System of the Armed Forces of the Philippines, Manila Electric Company Pension Fund, Philippine Long Distance Telephone Company Beneficial Trust Fund, and the Philippine National Bank Provident Fund gave life to what is popularly known now as the “Kabuhayan Mutual Fund.”

Fully supported by the likes of the then Secretary of Finance Roberto Ocampo and President Fidel Ramos, the Fund was launched at the Heroes Hall of Malacañang Palace.

Since then, a cross section of Filipinos: Overseas Filipino Workers (OFWs) from Hong Kong, Singapore, Saudi Arabia, United Kingdom, United States, Canada, Thailand, Taiwan, and of course locally from as far as Davao City and Isabela have entrusted their money and invested in this fund.

The ATR Capital Partners have infused additional capital into MFMCP and with it brought more expertise into the management of the Fund. MFMCP has also two more funds under it: ATR Kim Eng Equity Opportunity Fund Inc and ATR Kim Eng Fixed Income Fund.

Nine reasons on why should I invest in Kabuhayan Mutual Fund when there is a global economic recession?

1. Since a lot of people lost their jobs, they are afraid to spend their money. This in turn caused everything to be cheap (lower demand equals lower prices). Now is the best time to invest since it’s cheaper than when the economy gets better in the years to come.

2. Very affordable - Minimum investment is only P5,000. Then You can add a minimum additional investment of P1,000.

3. Safe - The mutual fund company you are investing in has been around for more than ten years. It is registered with the Securities and Exchange Commission (SEC) in the Philippines and follows strictly rules and regulations governing mutual funds. MFMCP has a custodian bank, Hong Kong and Shanghai Banking Corporation (HSBC) who is the safe keeper of the fund’s assets namely the money and the securities. The mutual fund company is a separate company from the management company. The mutual fund company contracts the management company to become its fund manager. The management company’s main responsibility is to make the fund grow through investing in equities and fixed income securities. It also reports the funds’ performance every quarter of the year to the board of directors of the fund company.

4. The fund manager invests the fund in a very secure and safe (blue chip) companies after a careful study and analysis of the financial market, the track records of the companies he will invest in. He monitors the market looking for opportunities to make a profit.

5. Investment in mutual fund is diversified. In Kabuhayan Mutual Fund, the fund is 50% invested in equities which is further spread to 22 different stocks and 50% in fixed income securities which is

mostly government treasury bills.

6. The fund is transparent. Its performance is reported quarterly to SEC and to the board of directors of the fund. In addition, investors can view his/her account anytime through the internet. MFMCP assigns each investor a password which he/she will log in at MFMCP’s website to access his/her account.

7. Of course, the main consideration in investing is the return on investment or the money you’ll make. Kabuhayan Mutual Fund has averaged for three years a yield of 20%. For 2007, its year-to-date earnings are 21.08%.

8. Investment in mutual fund is very liquid. You can redeem your investment anytime you want.

9. MFMCP’s main concern is that “the interest of the funds’ investors always comes first.” The company has an Investor Relations Department which is dedicated to servicing the investment needs of the clients.

For more information about the funds and the management, e-mail Gigi at gidj2006-eche@yahoo.com.ph.

Contact UsFeel free to drop by our branches or inquire in the following numbers:

Institutional Sales Desk and MFMCP Head Office View Map

17th Flr. Tower One & Exchange Plaza, Ayala Triangle, Ayala Avenue,Makati City 1200Trunkline: +632-848-1381Fax: +632-841-0315

Buendia - Investor Relations Branch View Map

Ground Floor Morning Star Building, Sen. Gil Puyat Ave. (formerly Buendia),Makati City 1200Telefax: +632-890-3827Landline: +632-896-3734, +632-896-3750, +632-890-1758 local 403

ow May We Help You??

> Contact Us Can't find the answer to your question? Call us at: +632-896-3750 (Buendia, Makati) +632-848-1381 (Ayala Ave, Makati)or send us an email

> Email Alerts and Newsletter > Site Feedback > Attend a Free Seminar

FAQ1. What is a mutual fund? 2. What are the benefits of investing in a mutual fund? 3. What are the different types of mutual funds? 4. Are mutual funds guaranteed? 5. What is the right fund for me?

6. Are there any fee's or charges when investing in any of MFMCP's funds? 7. How can I track the performance of the fund? What is a NAV? 8. Can I withdraw my money anytime? 9. Who can I call about my account?

1. What is a mutual fund

A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy). By pooling money together in a mutual fund, investors can purchase stocks with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification.BACK TO TOP

2. What are the benefits of investing in a mutual fund?

For the average investor, mutual funds are a convenient and affordable way of gaining access to investments that would otherwise be available only to large institutions or the wealthy. These investments are selected by experienced professionals who devote themselves exclusively to tracking the markets, analyzing investments, and implementing a consistent investment strategy.

Diversification - Diversification is the idea of spreading out your money across many different types of investments. When one investment is down another might be up. Choosing to diversify your investment holdings reduces your risk tremendously.

Professionally managed - For the individual investor, mutual funds provide the benefit of having someone else manage your investments, take care of recordkeeping for your account, and diversify your pesos over many different stocks that may not be available or affordable to you otherwise.

Low investment amount - Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds.

Easy access to your funds  - You can liquidate your investment anytime you want to. However you will need to be aware of the value of your investment at the time you liquidate in order to know whether the value increased or decreased. BACK TO TOP

3. What are the different types of mutual funds

Equity Funds invest shares in common stock Fixed Income Funds invest in government or corporate securities which offered fixed rates of

return Balanced Funds invest in a combination of both stocks and bonds BACK TO TOP

4. Are mutual fund guaranteed?

Since mutual funds qualify as securities and not deposits, they are not guaranteed, their values change frequently and past performance may not be repeated.

However, fund managers and the funds themselves operate under strict securities regulations. For example, mutual funds are owned by the shareholders and are separate legal entities from the companies that operate them. BACK TO TOP

5. What is the right fund for me?

Once you've identified your goals and the types of funds available to help you reach them, it's time to identify specific funds that might be suitable for you and learn more about them before you make your investment.

# Visit the Fund Selector to review funds by investment category and compare their objectives, performance, and expenses. Also review the fund's minimum investment requirement to determine if you can meet the initial requirement needed to open an account. # Read the prospectus carefully before you invest. It's important that you understand how the fund operates and how its policies, fees or philosophies might affect your investment over

Read the prospectus carefully before you invest. It's important that you understand how the fund operates and how its policies, fees or philosophies might affect your investment over time. BACK TO TOP

6. Are there any fees or charges when investing in any of MFMCP's funds?

Kabuhayan Mutual Fund and ATR Kim Eng Equity Opportunity Fund

Entry or Sales Fee Exit or Redemption Fee

2.24% of  amounts ranging from P5,000-P50,000 2.24% of Investment Amount to be withdrawn for shares held  less than a year

1.68% of  amounts over P50,000-P100,000 1.12% of Investment Amount to be withdrawn for shares held  more than a year but less than two years

1.12% of amounts over P100,000  

  ATR Kim Eng Fixed Income Fund

Entry or Sales Fee Exit or Redemption Fee

1.12% of any investment amount 0.5% of Investment Amount to be withdrawn for shares held less than a year

 

BACK TO TOP

7. How can I track the performance of the fund? What is a NAV?

Treat a mutual fund's net asset value as its price per share. If you see a fund NAV as P100, then you can expect to buy the fund for P100 or sell it for P100. Since mutual funds hold a number of stocks, the net asset value must be calculated at the end of the day on a daily basis.

NAV or Net Asset Value of the fund is the cumulative market value of the assets of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices. NAV is calculated as follows:

NAV=Market value of the fund's investments+Receivables+Accrued Income- Liabilities-Accrued Expenses/Number of Outstanding Shares

BACK TO TOP

8. Can I withdraw my money anytime?

Yes, investors have immediate access to their money by selling shares at the fund's net asset value, which is determined at the end of each trading day.

BACK TO TOP

9. Who can I call about my account

Investors Relations Officers can be reached on Mondays to Fridays, 9 am tp 5 pm at telephone

numbers +632-896-3734, 896-3750, 890-3827 and 848-1381. IRD can also be reached outside of working hours and on weekends via SMS at mobile number +63-917-525-2558 and via e-mail at ird@mutualfund.com.ph

The IRD can also assist in providing practical analysis of the current political and economic situation in addition to the fundamentals of various investments of the fund; quality basic advice and timing on investment; efficient and precise and speedy confirmation and documentation of investment or redemption; efficient settlement and reporting of accounts and lastly, to ensure the confidentiality of all investor accounts and dealings with MFMCP.

Click below to view to location maps of our offices: Head Office and Institutional Sales Desk Buendia Investor Relations Office Araneta Center Investor Relations Office Lipa City Investor Relations Office

Established in 1972 and listed on the Stock Exchange of Singapore, Kim Eng Holdings Ltd. is the leading independent stockbroking house in Singapore, with operations spanning Hong Kong, Indonesia, South Korea, London, Malaysia, New York, the Philippines, Taiwan and Thailand.

Kim Eng subsidiaries or affiliates are the top stock brokers in Thailand and Indonesia, and ranked second in Singapore and fourth in the Philippines.

Aside from its core business of equity trading and research, Kim Eng is also involved in corporate finance, asset management, fiduciary services, and hedge fund operations.

Kim Eng’s important strategic partners across the region include Mitsubishi UFJ Securities Co. Ltd. of Japan, Yuanta Core Pacific Securities Group of Taiwan, and ATR Holdings, Inc. of the Philippines.

Visit KimEng Holdings Ltd.'s corporate website

The Kabuhayan Fund is the trade name or brand of The Mutual Fund Company of the Philippines, Inc. This is also sometimes known as the MFCP Kabuhayan Fund. This fund was established and began marketing in 1995, and incepted on April 29, 1996.

 

Investment Objective:The Kabuhayan Fund is designed to seek total return through current income and long-term capital growth through investment in listed and non-listed equity and fixed income securities of Philippine companies and debt obligations of the Government of the Republic of the Philippines and its instrumentalities. Shares in the Fund are offered primarily to Filipinos.

Largest Institutional Investor-Customers (in alphabetical order, as of end-July 2009):

Asian Development Bank (ADB) AsianLife and General Assurance Corp. (ALGA) AsianLife Financial Assurance Corp. (ALFA) ATR KimEng Capital Partners Inc. (as trustee)

ATR KimEng Securities Inc. (as trustee) Eastbridge Holdings Inc. Home Development Mutual Fund (The Pag-IBIG Fund) Kapatiran sa Kasaganaan Cooperative (KsK) Manila Electric Co. (Meralco) Pension Fund Philippine Long Distance Telephone Co. (PLDT) Beneficial Trust Philippine National Bank (PNB) Regular Retirement Fund

Board Of DirectorsName Position Affiliation

Mr. Carlos C.Torres Chairman/President DEG

Ms. Ma. Elena Sarmiento Vice-Chairman/TreasurerPNB Reg Retirement Fund

Mr. Rufo B. Colayco Director ATR KimEng Group

Atty. Rosito B. Manhit Director PLDT Beneficial Trust

Mr. Manolo C. Fernando Director Meralco Pension Fund

Mr. Vicente K. Fabella Independent Director Jose Rizal University

Atty. Rose Marie M. King Corporate Secretary SyCip Salazar Law

Atty. Melyjane G. Bertillo Asst Corp Secretary SyCip Salazar Law

External AuditorManabat Sanagustin (affiliate of KPMG International)

 

A mutual fund is a company that pools investors' money to make multiple types of investments, known as the portfolio. Stocks , bonds, and money market funds are all examples of the types of investments that may make up a mutual fund.

The mutual fund is managed by a professional investment manager who buys and sells securities for the most effective growth of the fund. As a mutual fund investor, you become a "shareholder" of the mutual fund company. When there are profits you will earn dividends. When there are losses, your shares will decrease in value.

Mutual funds are, by definition, diversified, meaning they are made up a lot of different investments.

That tends to lower your risk (avoiding the old "all of your eggs in one basket" problem).

Because someone else manages them, you don't have to worry about diversifying individual investments yourself or doing your own record keeping. That makes it easier to just buy them and forget about them. That's not always the best strategy, however -- your money is in someone else's hands, after all.

Since the fund manager's compensation is based on how well the fund performs, you can be assured they will work diligently to make sure the fund performs well. Managing their fund is their full-time job!

Mutual funds can be open-ended or closed-ended. But many people consider all mutual funds to be open-ended, while putting closed-ended funds in another category.

"Open-ended" means that shares are issued in the fund (or sold back to the fund) whenever anyone wants them. With closed-ended funds, only a certain number of shares can be issued for a particular fund, and they can only be sold back to the fund when the fund itself terminates. (You can sell closed-ended funds to other investors on the secondary market, though.)

Next Up

Money Market Accounts The Stock Market PlanetGreen.com: Green Investing

Load refers to the sales charges added to a mutual fund when you purchase it. The load charge goes to the fund salesperson as a commission and payment for their research services. Load charges can be up to 8.5 percent of the selling price and can be figured in as a front-end load (meaning you pay it when you buy the mutual fund) or a back-end load (meaning you pay when you sell the mutual fund).

Many mutual funds are no-load funds. Yes, that means there is no sales fee charged and the fund is direct-marketed so you can buy it without the help of a salesperson. With the wealth of information on the Internet today, it is certainly easier to make smart choices yourself to save money.

In addition to no-load funds, there are also funds that charge up to 3.5 percent as a sales fee. These are called low-load funds and can still be a good deal.

Mutual funds fall into three categories:

Equity funds are made up of investments of only common stock. These can be riskier (and earn more money) than other types.

Fixed-income funds are made up of government and corporate securities that provide a fixed return and are usually low risk.

Balanced funds combine both stocks and bonds in the investment pool and offer a moderate to low risk. While low risk may sound good, it is also accompanied by lower rates of return-meaning you risk less, but your investment won't earn as much. You have to decide how much risk you're willing to take on before you invest your money.

If you have invested in a college savings fund or a 401k account, chances are good that already own a few mutual funds. Mutual funds are great for long-term investments like these. You can also buy mutual funds directly from a mutual fund company.

Most of these offer no-load funds (or sometimes low-load funds). You can find lists of mutual fund companies on the Internet and purchase shares by simply filling out an application and mailing a check. Once you are a shareholder, you will receive statements telling you how the fund is doing as well as

how much your own investment is growing. You can also set up monthly bank transfers to automatically buy more shares every month.

Remember to do your research and select a mutual fund that fits the level of risk you are willing to take with your hard-earned cash. Then just sit back and hope for the best!