Fixed term vs. Mutual funds: in which one would your AFP produce the greatest profits?

May 3rd is the deadline for the S.B.S. (Superintendency of Banking, Insurance and AFP) publish the operating procedure for the withdrawal of up to S/20,600 from the AFP (Administrators of pension funds) and that they can then announce the dates to send the applications and the payment schedule.

In this context, many affiliates are looking for profitable investment strategies to grow their money. The dilemma varies between choosing the traditional fixed terms and the more dynamic mutual funds. For this reason, La República interviewed Gonzalo Llosa, professor of economics and researcher at the Universidad del Pacífico, to explain which is the most viable option and with the most possibilities of profit.

What are fixed-term deposits?

The S.B.S. (Superintendence of Banking, Insurance and AFP) points out that fixed-term deposits are accounts in which you put your money for months or years; That is, one agrees not to withdraw the amount in exchange for the financial institution paying an interest rate based on the agreed time.

However, if partial or total withdrawals are made before reaching the agreed period, a penalty must be paid that was agreed upon at the time of signing the contract with the bank.

What are mutual funds about?

According to the Securities Market Superintendencemutual funds are a simple investment alternative in which several people contribute to a common fund managed by a Fund Management Company (SAF). Gonzalo Llosa indicates that these entities invest the money in different assets, generally shares that are listed on public markets.

In this type of investment, the profits in a specific period of time are not specified. “They do not have a return that is foreseen over time like fixed-term deposits do. Rather, The return varies according to the economic situation faced by the companies in which the funds are invested.“explains the specialist.

Fixed term vs. mutual funds:Where is it most profitable to put your AFP?

The pensioner who in the coming weeks will withdraw up to S/20,600 from his AFP can choose to put it in a fixed term or invest it in mutual funds. Professor Gonzalo Llosa points out that it can be this amount or less, since the decision should be based mainly on how long you can maintain the investment and the risks you are willing to bear.

“If you want greater profits, it is appropriate to consult with a specialist to invest in a mutual fund that is sufficiently diversified and has the ability to maintain that investment for a long time, that is, not requiring that money in the short term,” details the specialist.

Additionally, it is important for the person to know his or her own risk aversion if he or she is to “withstand fluctuations in the valuation of those mutual funds.” The reason is that the value of the funds will sometimes fall and other times rise, but if “If you focus on a much longer horizon, ten years or more, you will realize that since the beginning it has multiplied“Llosa highlights.

However, he recommends that if the person is more cautious and prefers to preserve their capital, then investing in mutual funds is not the best option. Therefore, you can choose assets with lower volatility, closer to fixed-term deposits.

What security measures to verify in fixed-term deposits and mutual funds?

The economics professor and researcher recommends taking into account the following guidelines when choosing to make a fixed-term deposit or invest in mutual funds:

• Fixed term
• The financial entity must be supervised by the SBS.
• The entity must contribute to the deposit insurance fund.
• Mutual funds
• Fund Management Companies (SAF) must be supported entities.
• The client must know that the return on what they invested is variable, they can change over time.
• There are many schemes that offer high returns that can lead to complicated situations, either because they lose part of their money or because they are scammed.