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How to compute your income in Mutual Funds


A lot of people invested in Mutual Funds are still at a loss regarding how their earnings from Mutual Funds are actually computed. Since this is the case, we’ll help shed light on how this is done in this short and simple discussion.

You’ll find below a step-by-step guide on how you yourself can personally compute the gains (or losses) of your Mutual Fund investment.

Step 1: Determine the number of shares you own

When you invest in mutual funds, you are actually buying “shares” of the mutual fund company. (Learn more about it here: Introduction to Mutual Funds)

The price you pay is equal to the NAVPS or the Net Asset Value per Share, a figure that changes every day since it represents the “market value” of all investments owned by the mutual fund company.

Let’s assume you wish to invest P100,000 in a Mutual Fund. You checked and saw that the mutual fund’s NAVPS price is currently P1.75.

Given this NAVPS value, if you invest P100,000 you will receive 57,142 shares of this mutual fund, computed as follows:

  • P100,000 divided by P1.75 = 57,142 shares

Your total investment value that day is P99,998.50, computed as follows:

  • 57,142 shares x P1.75 NAVPS = P99,998.50

Does this mean the entire P100,000 is not fully invested? You’re correct, and you actually will get a change of P1.50 from the company. (Some companies, though, will just give you a fraction of the shares valued at P1.50 so that they will no longer have to give you back the P1.50 change. We will not consider that, however, in this example.)

For simplicity purposes, we will also not consider any fees or sales loads charged by the fund. Do note, though, that most funds will charge a fee either upon investment (entry fee or front-end sales load) or when redeeming your mutual fund shares (exit fee or back-end sales load).

Step 2: Determine the current NAVPS

At any day, you can compute the value of your mutual fund investment. The only two things you need to know are:

  1. Number of shares you own
  2. NAVPS price on that day

Let’s assume that at the end of 1 year, the NAVPS of your mutual fund is P2.50.

To calculate the profit, here’s what you simply have to do:

Get the difference between the current NAVPS and the NAVPS when you originally bought the shares. Then multiply this with the number of shares you own and you’ll get the amount of your profit.

Mathematically:

  • Current NAVPS = P2.50
  • Original NAVPS when you bought the shares = P1.75
  • Difference in NAVPS prices = P2.50 – P1.75 = P0.75
  • Number of Shares you Own = 57,142 (from Step 1 above)
  • Profit = Difference in NAVPS price x Number of Shares you Own
  • So your Total Profit = P0.75 x 57,142 = P42,856.50

This means your P100,000 investment has already produced you a profit of P42,856.50. Not bad!

Alternatively, you can just compare the current total fund value and the initial fund value. The “current total fund value” is the product of (i.e., multiply) the number of shares you own and the current NAVPS price. The “initial fund value,” meanwhile, is the product of (i.e., multiply) the number of shares you own and the original NAVPS price.

Mathematically:

  • Current fund value = 57,142 shares x P2.50 NAVPS = P142,855.00
  • Beginning fund value = 57,142 shares x P1.75 NAVPS = P99,998.50
  • Difference in fund values = Total Profit =P142,855.00 – P99,998.50 = P42,856.50

As you can see, this computation produces the same amount of profit we computed using the other formula above.

One important point to remember, though. This profit is still “paper profit” or “unrealized income.”

That’s because you have not redeemed the shares yet. Any day afterwards, the NAVPS could still change which means your fund value (and profit) will also change. And when that happens, whatever “paper profit” you have computed become irrelevant.

We’ll show this in the next example.

Step 3: Calculate actual profit at time of redemption

Let’s assume it’s now the 2nd year and you wanted to encash and redeem your shares.

Before we proceed, we’ll highlight again that the fund value and your profits at the end of Year 1 are now irrelevant. Yup, they are NOT important anymore at this point. Whatever “profit” you have previously gained was not “realized” since you did not redeem the shares.

Let’s assume that at the end of Year 2, the NAVPS price is P2.00. As in Step 2, we can compute the profit by comparing the current and original NAVPS:

  • Current NAVPS = P2.00
  • Original NAVPS = P1.75
  • Difference in NAVPS prices = P2.00 – P1.75 = P0.25
  • Number of Shares Owned = 57,142
  • Profit = P0.25 x 57,142 = P14,285.50

At the end of Year 2, your mutual fund investment has earned profits of P14,285.50.

If you redeemed all 57,142 shares, you will get P14,285.50 cash as profit.

The total money you would get from the mutual fund is this profit plus the original investment (P14,285.50 + P99,998.50), which totals P114,284.00.

The total cash proceeds, which you’ll receive upon redemption, can also be computed this way:

  • Current NAVPS = P2.00
  • Number of Shares Owned = 57,142
  • Total Fund Value = P2.00 x 57,142 = P114,284.00

Again, be reminded that this computation does not consider any fees charged by the fund. Your fund value may be reduced by any exit fees or back-end sales loads charged by the mutual fund.

We hope this gives you an idea how to compute your mutual fund income. Happy investing!

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48 thoughts on “How to compute your income in Mutual Funds”

  1. Diabetis says:

    HAnggang ngayon ay nahihirapan pa rin akong intindihan yun. Siguro tama na sa akin ang online earning, he he he.

    1. jack.jackie says:

      ónline earning, paano yan sir?

  2. Pam says:

    I have a few Qs:

    When is the best time to invest in mutual funds?
    How do you select one?
    Can you redeem any time?

    Thanks in advance for the clarification.

  3. lance says:

    I have the same question

    When is the best time to invest in mutual funds?
    How do you select one?
    Can you redeem any time?
    Is it risk-free to invest in Mutual Fund?

    Thanks!

    1. Marco Antonio says:

      Hi!

      There is no “best time” to place investment  and to exist in Mutual Fund.  It depends with your objective (long term and short term).Try to read the concept about Peso Cost Averaging this will help you in determining the length of time to invest.  Selecting type is MF can be answered by determining what type of investor you are (aggressive, moderately aggressive, conservative and so on…).  MF has a holding period, but you can redeem anytime but you early redemption fee.  All types of investment portfolio has a  risk, but learn how to manage the risk :)
        

  4. buloid (francis.f.valencia@fami.com.ph says:

    When is the best time to invest in mutual funds?
    How do you select one?
    Can you redeem any time?
    Is it risk-free to invest in Mutual Fund?

    ———————

    1. To put it bluntly, there really is no “best” time to invest in a mutual fund. Since these are handled and monitored by fund managers on a full time basis, their buying, selling, and portfolio decisions will always be for the betterment of the shareholders. While others may argue that the “better” time would be to enter the market is low or going down, another may argue that “how will you know that the market will not go down the next day? or the day after?”

    One strategy that you can use if timing is a big concern would be to cost average. Quoting wikipedia:

    Dollar cost averaging is a timing strategy of investing equal dollar amounts regularly and periodically over specific time periods (such as $100 monthly) in a particular investment or portfolio. By doing so, more shares are purchased when prices are low and fewer shares are purchased when prices are high. The point of this is to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.

    By using cost averaging, you can eliminate the timing element in investing in mutual funds. You’ll be in the market when it goes up and when the market goes down, balancing any losses you could have incurred with gains in other placements.

    Whats important is to get your money working right away. Don’t try and predict the market because if you keep waiting for that “perfect” or “best” time to place, it may or may not come at all and your investment could’ve already been earning should you have just invested it earlier. In other words, anytime is a “good” time to invest in a mutual fund!

    2. In order to select a mutual fund that suits you, assess your investment objective, time horizon and risk profile. “Am I conservative? Am I open to exposing myself to stocks? Is this money for my retirement? My child’s college fund? My future dream home?” These, along with others, are good tip-of-the-iceberg questions that can aid you in determining the ideal fund — or funds — for you.

    Each mutual fund has its own investment restrictions and portfolio composition. A bond fund, for example, generally invests in government bonds and other fixed income instruments, whereas an equity will have exposure in stocks.

    While it’s logical that a conservative fits with a bond fund while an aggressive investor will fit into an equity fund, you should never discount the fact mutual funds are managed assets: ie, investments in your portfolio that someone else is monitoring for you. You can break your investable funds down to diversify your investments and try out more than one mutual fund. Since mutual funds generally have low initial investment amounts, a conservative investor can try out an equity fund without sacrificing too much of their placements in bond funds.

    In short, mutual funds have their own profiles or “identities” but that doesn’t mean clients should limit themselves to focusing on just one fund. Diversify!

    3. Mutual funds can only invest in marketable securities, or investments that can easily be liquidated in the market. By law, they are required to be able to liquidate your investment should you wish to “redeem” or withdraw it.

    Most funds charge an exit fee, however, for redemptions. Please check with each fund’s respective prospectus or fund managers for a schedule of such fees and its terms and conditions on check releasing and disbursements.

    4. Mutual funds are not risk free investments. They are subject to the risks that their underlying invesments (or the securities that they invest in) are subjected to in the market. It is by this nature that their returns and yields cannot be guaranteed as well, as a mutual fund can perform positively or negatively depending on its fund management and market conditions.

    Please note that the terms used to describe a fund’s performance were “yield” and “rate of return.” A mutual fund should not and cannot use the term “interest” to describe its performance as it connotes a positive rate of return.

  5. Chindilindi says:

    in that case, why is people telling us to invest long term when in fact on the 2nd or succeeding year, you MAY get it lesser? does this mean you need to be always on the look out to check if the price has been down so low? They said invest long term so that you will beat the loss and gains in every year that passes by, but in your example you said that the previous year’s price is not relevant anymore. Please clarify

    1. Chindilindi says:

      still no answer to my question :(

    2. letty says:

      Hello,

      There is no real defined length of time on keeping your investments that has been proven successful all the time.  The mutual fund prices move up or down depending generally on the bond/stock market movements and other economic factors whether globally or locally so yes, you can invest now at a price of say Php2 per share and that price can increase or decrease in the next two years.  The length of time you need to keep your investments depends on your investor profile – are you a value investor meaning you want to keep your investments for a longer term on the expectation that the value of the investments will go up; how much losses are you willing to take – can you wait till next next year to exit a losing investment upon its recovery? Or are you just a buy and sell type of investor who buys when the prices are low and sells when a target gain has been reached.  You should look at these investments as a legalized form of gambling meaning you can win or lose some or all depending on market forces and yes, you need to monitor the price per share on a regular basis to ensure that you are aware if your investment is losing or not. Hope this helps.

    3. Marco Antonio says:

      try to read about Peso Cost Averaging, this might help you understand to what is the best strategy in the length of time of investment :)

    4. PnoyFinancialCheckup says:

      First and foremost, dont confuse the example with practical strategies being use for mutual fund.

      The sample computation is for one time investment only, just to show the straight way to get your profit in MF investment IF and ONLY IF you have invested one time.

      Second, why are people investing in MF are encourage to stay long term? Go back to the fundamentals of the companies inside the fund itself. Let us say in FAMI , they have PLDT in their portfolio. Would you think PLDT as a company wanna close their telecoms business in just few years? I dont think so? They will surely strive to enlarge their business operations and give profit back to its shareholder including its investors. Same goes with other companies in the current portfolio of the fund, they wanna stay longer in business.

      Third, when entering MF , you should use constant peso averaging to buy shares at any given time. This way you minimize the risk of capital being wipe out vs. doing a one time big time investments.

    5. koibito says:

      I started MF (SALEF) since 2012 and monthly I put 5K on it. Now yung gain nya is 1500K (with total investment of 100K).
      If I put 100K one time (2012) its gain is already 25K.
      Better padin ba PCA (as time goes by nag iincrease NAVPS) so yung shares liliit din. tama po ba?
      thanks

  6. Letty says:

    Hi,

    Would my redemption proceeds be charged any taxes – i.e., I would receive them net of tax or as is (redemption NAV X shares redeemed).  Its my first time  investing in Phil funds and havent really considered taxes. Thanks.

    1. Romel says:

      redemption proceed from mutual funds are exempt from taxes – see Republic Act No. 8424

  7. Ravenclawph2000 says:

    Isn’t it that when you invest in mutual funds that you also get shares if you wait for their maturity? or would the shares stay the same from the time you buy the funds from the time you redeem them?

    1. letty says:

      The shares would stay the same unless (though very rare) there are stock dividends declared or capitalizable dividends (treated as subscriptions/purchase at no cost to you as investor).  These are free shares added to your holdings  – generally small – but still are an add on nonetheless. Some Phil mutual funds have declared stock dividends for shareholders back in 2008 to mitigate shareholder losses due to the global financial crisis. Hope this helps.

  8. may says:

    i understand the computing of MF coz i in financial education…. and im thankful coz of this i know how to save in a long term savings….. All types of investment has a risk but u must know and study on how to manage the risk…

  9. krispin says:

    hi,
    mag inquire lang po, although napansin ko na halos 1 year na po ang lat inquiries dito…magkano ho ba ang pinaka minimum na investment dito?may naririnig po kasi akong, monthly, pweeng mag-invest sa mutual funds ng Php1,000 lang, how true?ska pwede po bang i-redeem lang po yung pinaka profit nyo for that year  at iwan ulit yung pinaka shares?

    1. grifter says:

      hello there,
        i have not yet invested in this one, but i have read in the site of Sunlife under its mutual fund, that their lowest requirement is at P 5,000.00.

    2. Jupiterjones888 says:

      Sa FAMI they accept a mininum of 5000 pesos for starting an investment in in mutual funds. then the succeeding month youcan add a minimum of 1000k pataas. Depende syo if dadagdagan mo pa. for the range of 1 year to 5 year ang terms,,After that pwede mo na i Liquidate ung investment mo depende sa declare na dividends ng company.  Try to visit http://www.FAMI.com.ph for  more info and instruction,,,

    3. Melo says:

       I have already invested sa Cocolifefund, so far ok naman yung Fix income nila pataas ang shares. you may contact Nemensio S. Santos Jr (09178373320) paki sabi na lang you were refered by Melo.  P5,000.00 initial investment ok na.

  10. Pollux says:

    as far as i know your investment in MF will computed as compounded monthly?

    1. MariusDejess says:

      No, but I am not myself an expert here, still MF is not a bank time deposit wherefore it does not earn interest which is plowed back as addition to the original principal, that is what is called compounded interest.

      MF grows when the price of each share is higher than when you bought it, and it gets smaller when the price is lesser than when you bought it.

      The expectation is that it will grow bigger and bigger the price of each share that is, at least in the course of time it grows bigger [size=3]than[/size] it gets smaller, meaning if you want to get your money back make sure that it is at a time when the price of each share what they call the net asset value per share or NAVPS (not that I am an expert, but I think I have gotten the whole idea at least in the big picture) is greater than when you first bought it.

      For example, when you bought it today the navps is 1 peso, then tomorrow it is 1.25 pesos, and you want to get your money out, you will get .25 peso for every 1 peso you paid for each share, that is a gain.

      But you have to pay a penalty fee for getting your shares out before its what I might call maturity date, maturity date is the time when you can get your money out without any penalty, but of course with payment of fees, commissions, etc., if these have not been paid up at the very beginning.

      Perhaps maturity is not the proper term, but you get the idea.

      Mdejess

    2. JM Brosas says:

      I think compounding is not happening in MFs.

  11. Shakti Sharma says:

    i want to work with a any mutul fund company with brokerage house so plz give me a idea how to start and what is scope or earning in this sector and all the requirement 

    thanks 
    contect me  9816596133
     

    1. Melo says:

       you may call my Coco life Agent: Nemensio S. Santos Jr (09178373320)

    2. jack.jackie says:

      Hi Sir Melo,

      I m also interested to work in Mutual company is there any requirement.Is it allowed to do as part time job?

  12. choiederio says:

    Hi, Is there any contract or agreement that you need to redeem your profit after 1 year or more, or you can redeem it anytime?

  13. Otep says:

    Question: Does an investor need to redeem his shares annually to get the profit and then reinvest again his capital + profit and so on….. in order to compound his capital? Thank you.

    1. jenice joy says:

      Hi otep! No, but the best time to redeem is at least 3-5 years to ensure that your investment gained profit.

    2. lynlyn says:

      hi jenicejoy, pano po pag ka after 5 years eh mas lower na ung value ng share? ed syang po ung nd na gain na earnings

  14. Jay de Jorge says:

    Newbie here. Aside from selling your mutual funds when
    the price is high, does your money gain interest over time? I know it doesn’t
    give fixed values, But if I leave my funds for a certain time, does it grow? I
    mean for example I invest a certain amount say 100k for 5 years and leave it
    and the mutual fund let’s say performs good, does my 100k gain or will it only
    gain the moment I sell it when the price is high? I would gladly appreciate
    your reply.

    1. JM Brosas says:

      Your profit depends on the NAVPS at Year 5.

    2. JM Brosas says:

      I think you’re referring to compounding which I think is not happening in mutual funds.

    3. jack.jackie says:

      HI Sir JM,

      Some of the gurus usually advised to join MF which over the time is earning if you leave it at least 5 years..Jay’s question is the same confusion I have..so Meaning to say if invest today and tomorrow earns the NAVPS at by 50 percent,and if in 5 years my NAVPS earns by 2 percent..is it better to redeem the highest NAVPS which is one day after I invest..

      Meaning to say there is no compounding interest here in MF?
      Kindly explain further Sir..Thank you in advance..

    4. JM Brosas says:

      Mutual funds depend on the NAVPS. You’re profit today might be different n years from now. So tama, if mas malaki ang tubo ngayon tapos biglang bagsak 5 years after, mas ok na ni-redeem mo na agad ngaun. Pero kasi malulugi ka rin sa magiging charges kapag nag-withdraw ka. Everytime you sell your shares, it corresponds to charges set by the MF manager.

      Pero kasi wala namang makakaalam talaga. Depende din kasi sa goal mo. Kung gusto mo lang ng capital preservation na may konting tubo, sa bank ka na lang either high-interest yield na account (like yung BPI Family na MaxiSaver, may bonus kapag walang withdrawal in a month) or sa time deposit. Pero sure ka ba na magtatagal bank mo? Lahat may risk pero malabong magsara naman ang BPI or BDO. But you’ll never know.

      Sa MF naman, check mo ang history ng mga companies. Masesearch mo yan. Sa tinagal nila sa industry ano na ba ang YTD nila. Tiwala lang I guess sa pagpili. Study their numbers.

      Pero ayun nga, ang MF ay hindi parang savings account na may interest. Sa Savings account sure ang per annum mo. Ang MF kasi depende sa performance ng fund manager mo like Philequity etc. Kung ang nabili mo sa kanila eh lumaki, kumita ka. kapag hindi, tiwala lang na kikita sila in the long run. Pero malabong in more than 5 years eh di ka kumita sa mga kilalang fund managers. Siguro kung araw araw eh babantayan mo ang MF mo, baka malungkot ka lang kasi talagang may time na babagsak yan. But then spread your horizon in more than 5 years. Kaya never invest your emergency fund sa MFs. Dapat yung pasobra mo lang. Or if yung pasobra mo naman eh gusto mong ipang-negosyo mas ok din naman. Mas hawak mo pano palalaguin. So depende din sa goal mo.

  15. Jacklyn Delloza Hidalgo says:

    for starters..how much can you invest on mutual funds?

    1. flameskywiper says:

      you can start 5k from sunlife.

  16. crizzy10 says:

    meron po bang COMPOUND INTEREST ang FAMI? kung wala poh, meron po ba kayong alam na na MF’ s na nag-ooffer nun? thanks po ng marami.

  17. Dong Kordz says:

    but pano kung the other way around? mag decrease yung NAVPS? so decrease ung capital mo? tama po ba? for example:
    Current NAVPS = P1.75
    Original NAVPS = P2.50
    anyone can also give me links on when NAVPS increases or decreases? thanks..

    1. flameskywiper says:

      Syempre ang ma-redeem mo ay less na kesa original capital at meron pang bawas na exit fee. Pareho pag bumili ka ng stocks ngayon tapos ibibenta mo after a month na mas mababa kesa buying price mo, syempre lugi ka talaga at babawasan pa ng tax at other charges.

    2. jack.jackie says:

      sir, sundo’t n question..sabi sa explanation mo.,if today is 1.75 then tomorrow is 2.50..then halimbawa ngaun ka magreredeem, at 2.50 ang NAVPS today, diba may three days na allowance na makukuha mo yun..then sa three days na yun bumabaang NAVPS lets say 1.50..alin ang magrereflect doon ung that day na nag apply ka which is 2.50? or yung 1.50 na bumaba.. please explain po ,pasensya na po baguhan lang…thank you.

  18. Hay Day Cheats says:

    Keep this going please, great job!

  19. Hay Day Cheats says:

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  20. Lian Brandy says:

    can you suggest some mutual funds that is known this year… id like also to invest when I got home this year… to anyone has experience please…thnx

  21. lynlyn says:

    hi,
    does the shares can anytime to liquidate it?
    thanks. can some one help me for this. cause it makes me confuse regarding the example.
    parang ang dapat eh, once you sold na ung share mo at high value iwithdraw na bago pa bumaba ung cost per share. then buy ulit kapag mababa na ung value??

  22. Nharda says:

    is this computation also applicable sa VUL products? i hope may mag feedback regarding on this..

  23. mikantonio says:

    I think what I’d like to know is if my shares will gain/lose new shares depending on the fund performance or not. Or would I only have additional shares when I have subsequent investment? If it does not earn shares, there’s really no point in minding for the navps along the way, just when you think I’m ready to redeem, all I need to do is add more money to buy more share then hope that the company grows so navps also grows. Am I interpreting it right?

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