Bank vs. Fund Manager
Have you ever found yourself unable to make the distinction between a bank and an investment manager?
When you put your money in a bank, you will be considered as creditor and the bank acts as a debtor, thus your money is your “loan” to the bank. When you withdraw your money, the bank will return the entire amount of your savings including the interests as promised. The bank will actually gain profit from the difference in the results of the placement of bank assets (including providing loan to the bank’s clients) and the interest rate given to you as their creditor.
How about placing your money with an investment manager? When you place your money in products that are managed by the investment manager, you would expect your investment manager to manage your money and to profit from it. Unlike banks, investment managers do not consider your money as debt, but rather as assets that must be managed according to the product’s investment objective. When you withdraw your money, a fund manager will give you back the money according to the applicable provisions.
To put it as an analogy, an investment manager’s role is similar to that of a doctor, who is willing to undertake all possible means in curing their patients, understanding that a patient may suffer from factors that are beyond his capabilities. In other words, an investment manager will try to meet a client’s expectations in terms of profits, as required by his role and responsibilities, while understanding that there are factors that may affect the expected profit.
Below is a brief illustration of a banking product compared to an investment manager product, i.e. deposit vs. mutual funds:
|Manager||Bank||Investment manager and Custodian Bank|
|Legal entity||Based on Banking Law||Collective Investment Contract and Company Contract|
|Proof of ownership||Deposit slip/Book||Confirmation of ownership of participation units/Monthly report of unit balances|
|Return of investment||Interests||Returns/yields|
|Options offered||Deposits and savings||As of today, there are four products offered: Equity Fund; Balanced Fund; Fixed Income; and Money Market Fund|
|Investment period||Savings can be availed anytime. Some deposits have certain periods (1, 3, 6, 12 months)||Depends on the types of Mutual Funds:
All of the above Mutual Funds may be redeemed at any time.
|Fees charged||Generally, no fees required. (Except in the case of expenses for stamps or deposit certificate issuance)||Generally, investors are required to pay a subscription fee when making the investment and a redemption fee when redeem the investment.|
|Tax||20 percent final tax on deposit interests||Not subject to tax|