Are Feeder Funds worth it?

Many of us are already aware of the advantages of investing as many young people have shown interest in financial literacy and education. We’ve also heard about stock market investing, as well as investing in pooled funds such as ETF (Exchange Traded Funds), MF (Mutual Funds), and UITF (Unit Investment Trust Funds). But have any of you heard about Feeder Funds?

What is a feeder fund?

A feeder fund is a type of investment fund that invests its capital into a larger master fund similar to an overarching umbrella fund. Known as a master-feeder structure, a master fund is generally the central investment fund for several feeder funds to pool their capital and take advantage of economies of scale.

Feeder funds are a good option when you’re on a tight budget but still want to get started with investing. With these investments, even higher-priced funds are within reach, as long as they have a feeder fund.

Getting a feeder fund is like investing via installment. Such funds stretch out their payment, typically with a combination of an initial amount and monthly amortizations until you reach the minimum (or desired) amount.

What are the benefits in investing in Feeder Funds?

Diversified   Portfolio - Feeder Funds allow investors to diversify their portfolios. By investing into a Feeder Fund, the investor gains exposure to all the securities inside the Target Fund.

Ease of investing in overseas - Access to asset classes, industries and companies not available in one's home country.

Lower Cost of Investing - Collective investments, such as Feeder Funds, use economies of scale to leverage on cost. Also, lower minimum and stretched-out investment. Instead of one big cash-in, you can do it a little at a time or it allows for accumulation.

Without Feeder Funds, a retail investor would normally need to open and maintain a   global   brokerage account in order to purchase the stocks that the Target Fund invests in.

Regulated for Client's Protection - While the Target Fund is managed by a foreign fund manager, the Feeder Fund is operated by a local bank registered and regulated by the BSP.

A client who invests in Feeder Funds offered is assured that these investments have been scrutinized by the BSP for their safety

General risks inherent in Global/International Feeder Funds

Market/Price Risk - Potential losses due to changes in market prices of securities.

Liquidity Risk - Possibility to experience losses due to the fund’s inability to convert assets into cash immediately or in instances where conversion to cash is possible but at a disadvantageous price.

Foreign Exchange - Fluctuations in foreign exchange rates can affect one’s gains or losses.

Country Risk - The securities issued by or in foreign countries are risky due to political, economic and social structures of such countries.

Feeder funds are a good option when you’re on a tight budget but still want to get started with investing. With these investments, even higher-priced funds are within reach, as long as they have a feeder fund.

Adding to their affordability, feeder funds also usually have lower fees than UITFs. As a cheap person, that to me makes it worth it!

Remember, like all other types of investments, feeder funds are not immune to risk. Also, not all UITFs have a feeder fund, so you can only choose from the ones that do.

As always, the best approach is to seek professional financial and tax advice.

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Iggy Go is a Public Speaker & Content Creator >> www.youtube.com/iggygo