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How to make regular income from mutual funds and/or uitf funds.

mdejess · 38 · 15455

mdejess

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I am going to expose my naïveté, but since there are experienced and learned posters in this forum, I stand to learn from them.


Here is the background of this thread:

Quote from: Marius_de_Jess

Marius de Jess on May 12th, 2013 at 4:48 pm


Making money from funds is like planting rice but there is a crucial difference.

You plant 10 sacks of palay, eventually you harvest say 20 sacks of palay; so you sell 10 of the 20 harvested sacks, and again plant 10 sacks.

That procedure can go on and on, just that you put in labor and water and fertilizer and pesticide, and of course prayer that no typhoon will wipe out your palay prior to harvest time.

What is the difference with making money from funds?

The difference consists in the fact that when you invest 10,000.00 pesos in a fund, you are buying 10,000.00 pesos worth of shares in a mutual fund or units in a uitf fund, which shares or units let us say come to 10,000, at 1.00 peso per share or unit.

Now, when your 10,000.00 pesos has grown to be 20,000.00 pesos, you redeem the whole 20,000.00 pesos, but then keep 10,000.00 pesos and re-invest the other 10,000.00 pesos in the same fund.

But take notice however that at this time your 10,000.00 pesos will not buy 10,000 shares or units, but only 5,000 shares or units, of the same fund.

Now, if you continue in that procedure, eventually you will end up with buying only very little shares or units of the same fund; so the money you make continually becomes lesser and lesser.

Think about it.

That is the way I see it.

What is the remedy?

Think about the remedy, I am also thinking about the remedy.

Of course you can prefer not to redeem your fund until many years later and the fund has grown huge in monetary worth, and then you redeem it once, as for example you are going into retirement and can use that huge money from your original investment of 10,000.00 pesos.

But I am talking about making regular money like regular income from funds.


Marius de Jess

http://fitzvillafuerte.com/how-do-you-make-money-from-uitf-investing.html#comment-127108



The author of that blog where I put my inquiry, to my impression regularly goes into generalities, like one must examine one's goal whether it is for growth of money or for regular income.

You see, the simple matter is that it is to make money, period.


So, fellow posters here, from your experience and learning, please share with me and posters like myself your wisdom founded upon experience and learning and the desire of course to be generous with us ordinary investors, who just want to make money with our money because we can always use more money.



Mdejess



Wills

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Sir all of us here are ordinary investors if based on results.

You are looking at pooled funds in a different way, it should never be viewed as a regular income business.

When you put money in a pooled funds you are investing and should avoid redeeming partial of your fund in a consistent manner because you need to let compounding interest do its magic.

Mutual fund/uitf fund investing and operating a business(rice planting) differs in perspective.
« Last Edit: May 14, 2013, 06:41 AM by Wills »


freelancer_babe

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You are looking at pooled funds in a different way, it should never be viewed as a regular income business.

I strongly agree.

I see these funds as an alternative way to save money - instead of letting these sit in the banks where inflation erodes its monetary value over time.

If you are after regular income, then maybe really go into business, or get employed. Keep in mind though, that in many cases income from a business wins over those who choose to be employed. Then the excess from the regular income from business or a regular job - keep this in a wide array of products: from a savings account to mutual funds, UITFs or even stocks depending on the goal of the different funds.

Some of the highest yielding mutual funds and UITF will need to be kept for several years and withdrawn later to really benefit the income yield from these.
« Last Edit: May 14, 2013, 07:46 AM by freelancer_babe »


naldcagape

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mdejess. to make money in mutual funds or uitf, you have to think long-term. you have to let it grow and let compounding work it's magic.

although personally i believe there are better ways to make money but if you decide to go with mutual funds, you have to accumulate shares first. As you accumulate shares, you will go through stages.

First stage, you make the fund grow. Let's say you are able to invest 10k per month. If the fund makes an average of 12-18% per year, you'd have Php1M in 5-6 years. At Php1M, your fund will also make about Php120,000 per year or Php10,000 per month on average.

At this stage, continue to put money in the fund. Now you and fund are working together to grow your money.

In 16 to 20 years, you'll have Php10M in the fund. The fund will be making about Php1.2M per year. At this stage you can already stop putting in money in the fund because the fund is working harder than you (it's putting in 10x the money that you do). You can even start withdrawing, Php10k per month and the fund will continue to grow.

That's how you make money in funds. You need a long-term view. It doesn't pay immediate dividends.

You also make a lot of assumptions
1. You assume an average growth rate but the truth is there will be times when your fund will be negative especially for funds tied to the stock market.
2. On a related note, you assume that you can withdraw after 20 years but it's quite possible that at that time, the market crashes and funds lose 50% of their value. That happened in the US so don't think it won't happen here. That's why funds should just be a plan B. You ought to have other sources of income or another strategy to avoid these things from happening.

But that's the basic idea. You accumulate first and harvest many years later. Magic numbers will vary based on personal preferences.


CrimsonSky

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I agree. Pooled funds (uitfs/mfs) are not for those that seek income or generate income, they are for those that seek either capital growth or capital preservation.


intsik51

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 :D fully agree with sir naldcagape... :applause:


richpulubi

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Actually, you can.  It's done in the US all the time. 

But you need two things...an idea of the yield you want to withdraw on a yearly basis, and an honest to goodness balanced portfolio.

A balanced portfolio would have a cash component(money market), bond, and several equity fund components.  The equity components must have non-correlated funds...meaning, they shouldn't go up and down at the same time.  It should ideally be opposite.  Example, does anyone here buy BPI hi conviction?  Very few, cuz ther's too much exposure in mining.  But when you think about it, eventually it has a great chance to go up, while all other funds can go down.  Ideally, you have some in global, asian, and commodity funds too.

Now, the discipline comes what to sell, where to transfer, and how often to rebalance.  The portfolio should continue to grow (but less so than when you just keep funds there), at the same time, give SOME income.
« Last Edit: May 14, 2013, 11:40 AM by richpulubi »


Wills

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@TS

Since you're into mutual funds I suggest you take a look at Index Fund it is more safe than actively/star player managed funds.


naldcagape

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Actually, you can.  It's done in the US all the time. 
But is it worth doing it at a Php10K UITF portfolio? The portfolio size should also be taken into account.


mdejess

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I am truly most appreciative to you all for your experience and learning.

And I am encouraged to ask more questions in this forum from you posters here with your experience and learning and I will say wisdom.


I will have more questions to ask, but as usual please take into account that I am not any experienced investor or learned in investment matters -- that is why I am asking questions.

So, please be patient with me, even though you might at times get exasperated because I appear so naive (aka stupid, but not so stupid as to not ask questions and learn from experienced and knowledgeable folks).

Thanks, and I get the idea very clearly now, funds are like savings but they pay much more compared to interest earned by savings in banks, provided I be patient and wait for the invested money to grow, that is why it is called growth fund as compared to income fund which income fund can provide me with a regular income but not as impressive as the pay-off after say 10 or more years of keeping the money with the funds operator.



Mdejess


personalfinanceapprentice

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just to add (to the discussion and maybe some confusion as well:)... I think in other countries there are mutual funds that invest in dividend paying companies and pay out regular dividends to it's clients/subscribers. 

I couldn't find one like that here in the Philippines though.

At 10K a month, you can invest it yourself in big, blue chip companies like TEL or GLO and a few others. But the yield would be ~5% annually. TEL and GLO usually gives it out in two tranches, but the other relatively high-yielding companies typically pay out once a year. It's regular, but small. It beats inflation though (around 3.x%) - but it's also not guaranteed like a time deposit...

If there are actually "big players" out there reading this: try setting up a dividend paying fund. most of them are in the index anyway, so performance isn't too much of a problem. Plus, there's no competition.

(Most uitf and MFs get dividends, but reinvest them into the fund. So you benefit from it, through a higher NAVPU. But you don't get the cash.)


Wills

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I am truly most appreciative to you all for your experience and learning.

And I am encouraged to ask more questions in this forum from you posters here with your experience and learning and I will say wisdom.


I will have more questions to ask, but as usual please take into account that I am not any experienced investor or learned in investment matters -- that is why I am asking questions.

So, please be patient with me, even though you might at times get exasperated because I appear so naive (aka stupid, but not so stupid as to not ask questions and learn from experienced and knowledgeable folks).

Thanks, and I get the idea very clearly now, funds are like savings but they pay much more compared to interest earned by savings in banks, provided I be patient and wait for the invested money to grow, that is why it is called growth fund as compared to income fund which income fund can provide me with a regular income but not as impressive as the pay-off after say 10 or more years of keeping the money with the funds operator.



Mdejess

You are a fast learner Man!


fyrebyrd

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I am going to expose my naïveté, but since there are experienced and learned posters in this forum, I stand to learn from them.


Here is the background of this thread:


The author of that blog where I put my inquiry, to my impression regularly goes into generalities, like one must examine one's goal whether it is for growth of money or for regular income.

You see, the simple matter is that it is to make money, period.


So, fellow posters here, from your experience and learning, please share with me and posters like myself your wisdom founded upon experience and learning and the desire of course to be generous with us ordinary investors, who just want to make money with our money because we can always use more money.



Mdejess


Re: How to make regular income from mutual funds and/or uitf funds.

There is.

But here are the assumptions:

1.  You have no time to pesonally manage your investment
2.  Just earning a few interest points above the inflation rate and TD is an acceptable income rate
3.  You have a large amount of money as initial investment in the UITF or Mutual fund

Explanations:

As an investor asking for a regular income from UITF/Mutual fund I would classify you as a conservative investor thus the up and down swing in the  other NAVPU/NAVPS will cause your heart rate to shoot up and therefore it is not for you.
Having said that, the only vehicle available to your risk profile would be the money market fund.

Generally money market funds NAVPU/S are always in the upswing however  it does sometimes swing a little low due to collective withdrawals of participants for whatever  purpose they would like to use their money. But it usually bounce up the next day, hence it is the safest form UITF/Mutual fund.

The riskier forms are in bonds, stocks, and combo (balance fund). And yes, even govt securities fund does go down.
Now, going back. Money market fund is safest because it has no holding period. Interest wise, historically it earns more than TD, which BTW is covered by PDIC up to 500k while UITF/Mutual Funds are not.

But for money market fund to be a provider of regular income it has to have a large enough amount as initial investment  to meet your monthly desired regular income.


Wills

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Re: How to make regular income from mutual funds and/or uitf funds.

There is.

But here are the assumptions:

1.  You have no time to pesonally manage your investment
2.  Just earning a few interest points above the inflation rate and TD is an acceptable income rate
3.  You have a large amount of money as initial investment in the UITF or Mutual fund

Explanations:

As an investor asking for a regular income from UITF/Mutual fund I would classify you as a conservative investor thus the up and down swing in the  other NAVPU/NAVPS will cause your heart rate to shoot up and therefore it is not for you.
Having said that, the only vehicle available to your risk profile would be the money market fund.

Generally money market funds NAVPU/S are always in the upswing however  it does sometimes swing a little low due to collective withdrawals of participants for whatever  purpose they would like to use their money. But it usually bounce up the next day, hence it is the safest form UITF/Mutual fund.

The riskier forms are in bonds, stocks, and combo (balance fund). And yes, even govt securities fund does go down.
Now, going back. Money market fund is safest because it has no holding period. Interest wise, historically it earns more than TD, which BTW is covered by PDIC up to 500k while UITF/Mutual Funds are not.

But for money market fund to be a provider of regular income it has to have a large enough amount as initial investment  to meet your monthly desired regular income.


Sir fyrebyrd if I want 70thou a month, how much money is needed or enough for my desired income?


freefront

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Me! Me!  :hihi: Math and shameless plug.....  :D

Assuming  averaged monthly returns of 10%

70,000 dibye dibye 10%= 700,000 X 12 months= 8,400,000.00 , for everything else--- visit this:

http://www.pinoymoneytalk.com/forum/index.php?topic=25964.0


 


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