Short-term investment for starters

Short-term investment for starters

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They say nothing in life is permanent. But we can always make the most out of every opportunity. This applies to our finances as well. Your money may just be sitting on the fence while waiting for you to realize its potential.

If that is the case, short-term investment is something you can explore. It is a type of investment that can yield returns in just a short period. Some of these can be withdrawn ideally just a year after you have put in your money. 

Below are ideas you might want to consider if you plan to grow your money. 

Time Deposit Account

If you have not yet decided where to spend your money or have not yet found a high-yielding investment, opening a time deposit account may work for you. 

It is like planting your money until it matures enough for you to pluck it and be planted again in another fertile soil. Here, you lock up your money in the bank for a certain amount of time. It earns interest while sitting in the bank.

It has a higher interest rate compared to a savings account. A time deposit account is considered a risk-free investment because your money is covered by the Philippine Deposit Insurance Corporation (PDIC).

To be able to compare and find the best time deposit account, you should look for the bank’s initial deposit requirement, lock-in period options, and interest rate.

The initial deposit or the money you give the bank during your first transaction usually ranges from P1,000 to P50,000. 

The lock-in period is the same as its maturity period or term of placement. It is how long you choose not to withdraw your money and the minimum required time for the bank to award it an interest. The usual options are 30 days, 60 days, 90 days, 180 days, 1 year, or longer. 

The interest rate goes up depending on how high your initial deposit is and how long your lock-in period is. 

The downside here is locking up your money in a time deposit is that a fee will be charged when you withdraw your money before the agreed term of placement is over.

Money Market Fund

A money market fund is an investment for someone who wants minimal risk. It is ideal for people who want their money to be withdrawn a year after putting it in the bank. 

It is considered as an alternative investment to a savings or time deposit account because of a relatively higher interest rate. But when compared to other high-risk investments such as stocks, a money-market fund’s returns are still on a modest level. 

Banks do not live on your loan’s interests alone. They need a place where they can immediately borrow capital. That’s what a money market is. Companies and financial institutions transact here to buy and sell short-term debt instruments such as treasury bills, bonds, time deposits, commercial papers, and long-term negotiable certificate deposit (LTNCD). These debt instruments earn interest. 

However, such debt instruments are not available for the public to purchase directly. Thus, you need a financial institution to transact on your behalf as a fund manager. 

Companies, including banks, offer these in the following forms that are ideal for your short-term financial goals: 

1. Mutual Funds

Remember that Friends episode wherein they pooled in $50 each to buy tickets for a higher chance of winning the $300-M jackpot in the lottery? And if they would win, they would split the money.

A mutual fund somehow works that way. The company pools money from their clients, invest it and award the gains back to them. If you invest in a mutual fund, you are awarded a share depending on how much you have invested or pooled in. The amount you will earn will depend on the company’s Net Asset Value Per Share (NAVPS). This will be further clarified to you by the financial institution you have entrusted your money with.

This can also be seen on the website of the Philippine Investment Fund Association

2. Unit Investment Trust Fund (UITF)

A Unit Investment Trust Fund (UITF) works similarly to a mutual fund. However, instead of buying a share from companies, you are buying units of participation in the fund. 

UITF grows the pooled fund by investing it in stocks and bonds. It earns through dividends (part of a company’s earnings that it awards to shareholders), stock price increase (increase in the price of company shares in the stock market), and interest (paid by the Philippine Government or companies when borrowing the money). 

Your earnings in a UITF are subjected to a 20% tax, which makes it different from the non-taxable earnings from a mutual fund.

A UITF fits someone who has little knowledge and zero time for stock trading. You are entrusting your money to a company that will manage and trade for you in the stock market. 

The difference between a UITF and Mutual Fund has been summarized by Security Bank as illustrated below.

HOW MUCH MONEY DO I NEED TO START INVESTING?

  • UTIF: Minimum investment ranges from P10,000 to P100,000.
  • MUTUAL FUND: The minimum initial investment to join the fund can be as low as P5,000.

WHAT ARE YOU BUYING?

  • UITF: Units of participation in the fund.
  • MUTUAL FUND: Common shares in the investment company.

HOW DO I MAKE MONEY?

  • UITF: By selling your units of participation at a higher rate than when you purchased it.
  • MUTUAL FUND: Primarily through income earned from dividends on stocks and interests on bonds.

WHERE SHOULD I GO TO OPEN AN ACCOUNT?

  • UITF:Commercial Banks, specifically their trust, investment, or treasury departments
  • MUTUAL FUND:Commercial Banks and Mutual Fund Companies.

Final tips: 

Short-term investments are ideal people who want to immediately walk into unknown territory. Proper research is advised to make the most of your money. It is best to assess your lifestyle to see if it matches the terms of each investment option.

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