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On a promising track

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Mark Louis F. FerrolinoSpecial Features Writer

In the starting years of mutual fund concept in the Philippines, the industry had a rough start due to lack of government regulation, deteriorating political and economic condition, and an undeveloped equity market, among others. Today, about six decades after, a lot has changed. It cannot be denied that the industry shows greater stability and is poised for stronger growth, given the improving fiscal and economic environment of the country.

According to the Philippine Investment Funds Association (PIFA), the country’s association of mutual fund companies, there are a total of 66 mutual funds in the country as of March 12, 2019.

The increasing number of mutual funds in recent years can be attributed to several factors. One of these is the development of necessary controls and regulations.

Last year, the Securities and Exchange Commission (SEC), the country’s corporate regulator, issued implementing rules and regulations (IRR) of the Republic Act No. 2629, also known as the Investment Company Act (ICA).

The IRR amended the ICA Rule 35-1, initially published in 1998, with the aim to develop the Philippine capital market that will help prepare investment companies qualify and compete in international cross-border transactions by aligning the rules with global standards and practices.




BPI Investment Management Inc. (BIMI), a wholly owned subsidiary of the Bank of the Philippine Islands, told BusinessWorld in an e-mail that the said regulatory development enables investment companies to provide more investment opportunities as well as align with global standards and best practices.

As stated in IRR of the ICA, “No person shall act as an investment company unless it is registered as such in accordance with the Corporation Code of the Philippines, the Act (the ICA, Republic Act No. 2629), the SRC (Securities Regulation Code, Republic Act No. 8799) and their implementing rules and regulations (IRR).”

It added that a mutual fund company that already registered its common shares for offer or sale may also be allowed to register units of participation. However, it noted that the computation of the net asset values for the share shall be computed separately from the assets generated from the issuance of the units.

The rules also require investment companies to appoint a fund manager with an investment company adviser license. The fund manager, as well as its directors, chief executive officer, key executive officers or managers, and substantial shareholders, shall be fit and proper to serve based on their honesty, fairness, integrity, diligence, competency, capability, and financial soundness.

Amidst the improving government regulations, there are still some challenges being faced by mutual fund entities today. One of which, according to BIMI, is the competition with similar products, such as Unit Investment Trust Fund (UITF) and Variable Universal Life Insurance (VUL).

Technically, mutual fund, UITF and VUL are all types of pooled funds; investors can gain or lose depending on how the fund and the market perform. As defined by PIFA, mutual fund is an investment company that pools the funds of many individual and institutional investors to form a massive asset base. UITF, on the other hand, is a ready-made investment that allows the pooling of funds from different investors with similar investment goals, while VUL is a cash-value life insurance that offers both death benefit and investment features.

To address the said competition, BIMI said that the industry has been working closely with different regulatory bodies to develop or update existing regulations with the goal of promoting an equal playing field.

Another difficulty that mutual fund entities currently face is the perception of the general public towards investing in mutual fund. BIMI said that investors still considered opening an account or topping up as a burden — they perceived mutual fund as expensive and inconvenient.

“In the past, investors would have to physically have to go to the investment company or a branch (most are located in urban areas) to open and subscribe into a mutual fund. However, significant efforts have been [made] to make investing in mutual fund convenient and accessible through the use of online or digital channels. Several investment companies have also lowered their minimum investment amount to encourage more people to invest,” BIMI said.

In today’s era, BIMI still sees that Filipinos are lacking proper knowledge about investing. This makes it tougher for mutual fund companies to expand their AUM and client base.

Based on the 2017 Financial Inclusion Survey of the Bangko Sentral ng Pilipinas (BSP), only 22.5% of Filipino adults have some form of investment — the most common types are contributions to Social Security System (SSS) and Pag-IBIG. The report noted that only 3% of adults invest in stocks, bonds, UITFs, mutual funds, and other managed investment schemes.

Among those without investment, the most common reason is lack of money due to unemployment, followed by the perception of high cost, lack of awareness, and perceived lack of need.

Despite several challenges in the industry, BIMI remains optimistic about the future of the local mutual fund industry.

“With the different regulatory developments and the current digital revolution, there’s a lot of opportunity for the mutual funds to grow its AUM and client base,” BIMI said, noting that a lot of financial institutions are now enhancing their digital capabilities to reach a wider client base and improve cost efficiency.

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