Capital MArket Ni Jerryl

Republic of the Philippines
SURIGAO DEL SUR STATE UNIVERSITY

Cantilan Campus
Cantilan, Surigao del Sur
FINAL REQUIREMENTS
FOR
CAPITAL MARKET
Submitted by:
Jerry Sardual
Submitted to:
Mr. Euar Janley Espura

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Table of Contents
1) Introduction to Capital Market
2) Role of Capital Market in the Philippines
3) Factors Affecting Capital Market in the Philippines
4) Philippines Stock Exchange Overview
5) Capital Market Efficiency
6) Mutual Fund as a part of Capital Market
7) Concepts of Mutual Fund
8) Categories of Mutual Fund
9) Investment Strategies for Mutual Fund
10) Reference
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Introduction
to
Capital Market
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Capital markets basically deal with stocks and bonds in general. In simple
words, any firm is it private or government, is always in need of funds, so as to
finance its various operations to achieve certain long-term goals. Thus every firm
is supposed to acquire these very funds or capital; for which, it sells stocks and
bonds. These stocks and bonds are basically like shares, all of which are in the
company’s name. For instance, when the government of any country, issues
what are known as treasury bonds, it basically is tapping into the capital markets,
thereby generating capital.
This process is basically known as the IPO or Initial Public Offering.

Capital Markets are largely divided into two types, the primary markets, and
secondary markets. The companies and governments sell their securities in the
primary market, whereas the investors trade with these securities in what is
known as the secondary markets. Thus, it is safe to say that the capital markets
are an important area of the finance industry.
These markets are more like the foundations on the basis of which,
various companies and governments are able to invest in businesses, generate
employment as well as better infrastructure. One of the core responsibilities of
any capital market includes getting the people who are looking to invest, in
contact with those looking for capital. Put so simply, this sounds like a very easy
task to do, but in reality, a lot of professionals, perform this high-pressure task,
to get the desired results.
The private companies look to raise capitals for various reasons, other
than just expanding their businesses. They could be looking to finance start-up
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business ventures, or to battle with the sudden decline in the turnover, or for
buying out the competition. While it may seem like it is only those very
companies, which are profited from this whole business, it is not so. The very
reason someone would want to provide capital is that that person would be
looking to gain profit from their financing efforts.
A lot of people know of capital markets as stock exchanges. These are

places where anyone can invest and are more commonly known as the public
markets. This is where the Initial Public Offering takes place, which is the first
time when any firm, comes out into the public to sell their securities. The next
step where securities are bought and sold by investors is known as secondary
markets, as spoken about earlier.
These secondary markets take place, subsequently after the primary

market proceedings are over. Just as there are public markets, there also exist
the lesser-known private markets, which are also known as exempt markets.
These can be called as more lenient as compared to the public markets, primarily
because there are no regulations to be met. Also, this is seen as a more cost-
effective way for companies to fund their financing needs.
Thus the arena of capital markets has come to garner more attention by a
lot of people, which is why candidates look for programs, which can make them
proficient in the inner workings of capital markets. Imarticus Learning one of the
best education institute in India offers industry-endorsed courses in capital
markets, finance, and investment banking.
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ROLE OF CAPITAL MARKET
IN THE PHILIPPINES
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The formal Philippines capital market is one of the oldest in Asia. The
Manila Stock Exchange was established in 1927. Gold and copper mining stocks
dominated trading during the first five decades of operation, and trade in oil
stocks caused a boom in the late1970s. A rival financial group established a
second stock exchange in 1963. After years of conflict, the government induced
the two exchanges to merge in 1994 to form the Philippines Stock Exchange
(PSE).
The stock market took on increasing importance in the late 1980s. In the
five-year period beginning in 1987, total market capitalization grew from $3
billion to $14 billion. The stock exchange is owned by its 185 broker–dealer
members. Their representative’s control the PSE board of directors. Because
there is equal voting power among dealers, the more numerous small brokers
tend to control board decision-making.
Since the 1980s, emerging stock markets have been widely seen as the
most exciting and promising area for investment, especially because they are
expected to generate high returns and to offer good portfolio diversification
opportunities. Consequently, these markets have known a considerable
expansion. Indeed, financial liberalization has been largely implemented in
several emerging countries through on-going structural adjustment programs.
As a prerequisite to the financial liberalization processes, stabilization

policies have been designed to ensure macroeconomic stability, low inflation and
reduced budget deficits. As a result, emerging market capitalization has grown
from 4% of world market capitalization in 1987 to 13% in 1996 and was around
20% in 2000 in Philippines.
A large number of Asian emerging markets have launched a series of

reforms in the last few years, including the modernization and liberalization of
their markets. As a result of these developments and of the important
consequences of financial liberalization on International capital budgeting and
investment, the integration of the Asian stock market has emerged as an
important body of literature. However, the intensity and efficiency of these
reforms differ from one country to another.
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For cultural and historical reasons, the Philippines are probably the most
welcoming country of the Asian region for the western businessman. The
Philippines trade openness ratio reached an average of 119% over the last
decade. This is essentially due to the good functioning of the ASEAN (Association
of South-East Asian Nations) created in 1965 by five countries (Indonesia,
Malaysia, the Philippines, Singapore and Thailand).
In order to promote its integration into other international stock markets,

the Philippines market has recently undergone several reforms: liberalization and
privatization (since 1985), introduction of American Depository Receipts (ADR)
and country funds (1989). Therefore, the Philippine stock market is expected to
be better integrated during the post-liberalization period than it was during the
period prior to the opening of its market.
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FACTORS AFFECTING
CAPITAL MARKET
IN THE PHILIPPINES
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Capital Markets are primarily driven by the exchange of Capital (in the
form of cash or security) by those in need of Capital and by those offering it. The
investment attracted by any Capital Market is influenced by many factors.
Highlighted below are some of these.

1. Systemic Risks
These are largely dependent on the structure and processes of a Capital
Market system and the country, which it is associated with. Due to economic
fluctuations such as recession and the recent global economic crisis, the
structure of the global Capital Markets has been strengthened by increasing the
authority of regulatory authorities, setting up new authorities and on having
Central Counter Parties (CCP) responsible for execution of Trade or Trade
Guarantee.
CCP mitigates counter-party risk, which means it mitigates potential

default of either of the parties involved in a transaction or trade. The Sub-Prime
Crisis of 2008 has triggered new statutory provisions introduced by Dodd-Frank
Wall Street Reform and Consumer Protection Act (also known as Dodd-Frank
Act), specifying a mandate on record keeping and reporting of credit swaps.
2. Efficiency
Efficiency is the ability of the system to process Trades, irrespective of
their volume, at the earliest and within the stipulated time without errors.
3. Reliable Systems
Reliable systems need to be available and operational all the time
irrespective of risks from internal failures and external events.
4. Cost
Cost per Trade or Transaction (to clear both sides of a Trade) matters
most for many investors.
5. Technology Influence
Today technology has a great impact on all these influencing factors
mentioned above. Regulatory authorities and CCPs need accurate database and
monitoring systems. Efficiency of the system can be at the best with the use of
the right technology. When the right technology is provided with good back-up
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(redundancy), a system becomes more reliable. Cost is controlled by improving

efficiency, which is again dependent on technology.
It is technology that saved us from the paper crisis in 1960s, when the
settlement time was increased to 5 days to catch up with the paper work. With
this, not only the need of paper was eliminated to a significant extent, but it also
brought in more transparency and efficiency in to the system.
It is not an exaggeration to state that technology is one of the most

supportive and influencing underlying factors for Capital Markets. Being a global
Financial Technology company, we understand this best.
Presently, USA offers one of the most reliable and cost efficient systems
in the world. Though it has faced a number of crises due to systemic risk events,
US markets have successfully recovered in all instances and continue to attract
the highest global investment and offers the lowest cost per Trade. This is
because each crisis is followed by effective corrective measures such as the
strengthening of regulatory authorities and system monitoring.
It is noteworthy that the Securities and Exchange Commission (SEC),

which is a prime Regulating Authority for Capital Markets in USA, has authorized
CCP for Mortgage Backed Securities (MBS) Trades that have hitherto been
traded without CCP and thus, take several months for settlement. This step is
expected to reduce risks and streamline the settlement of MBS Trades beginning
from April 2012. This is a good initiative and helps to prevent crisis such as Sub-
Prime. Let us hope that markets of the rest of the world would do their part to
mitigate such major systemic risks!
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PHILIPPINE STOCK
EXCHANGE OVERVIEW
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The Philippine Stock Exchange, Inc. (PSE) was incorporated on July 14,
1992 as a non-stock corporation with the primary objective of providing and
maintaining a convenient and suitable market for the exchange, purchase and
sale of all types of securities and other instruments. The Company eventually
became a stock corporation on August 3, 2001.
On December 15, 2003, pursuant to the demutualization mandate of
Republic Act No. 8799 or the Securities Regulation Code, PSE's capital stock was
listed by way of introduction. The following year, PSE sold 6,077,505 shares from
its unissued stock to five strategic investors by way of private placement. These
strategic investors were the PLDT Beneficial Trust Fund, SMC Retirement Fund,
Government Service Insurance System, Kim Eng Investment Ltd., and KE
Strategic Pte. Ltd.
The PSE has two wholly-owned subsidiaries, the Securities Clearing
Corporation of the Philippines, which was primarily organized as a clearing, and
settlement agency for; and the Capital Markets Integrity Corporation, which
functions as the PSE's independent audit, surveillance and compliance unit over
the trading activities of brokers.
The Company likewise owns 20.98% of the Philippine Dealing System
Holdings Corporation, the holding company of the country's fixed income
exchange operator, and 80% of Premier Software Enterprise, Inc.
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CAPITAL MARKET
EFFICIENCY
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The efficient markets theory (EMT) of financial economics states that the
price of an asset reflects all relevant information that is available about the
intrinsic value of the asset. Although the EMT applies to all types of financial
securities, discussions of the theory usually focus on one kind of security, namely,
shares of common stock in a company. A financial security represents a claim on
future cash flows, and thus the intrinsic value is the PRESENT VALUE of the cash
flows the owner of the security expects to receive.
Theoretically, the profit opportunities represented by the existence of

“undervalued” and “overvalued” stocks motivate investors to trade, and their
trading moves the prices of stocks toward the present value of future cash flows.
Thus, investment analysts’ search for mispriced stocks and their subsequent
trading make the market efficient and cause prices to reflect intrinsic values.
Because new information is randomly favorable or unfavorable relative to
expectations, changes in stock prices in an efficient market should be random,
resulting in the well-known “random walk” in stock prices. Thus, investors cannot
earn abnormally high risk-adjusted returns in an efficient market where prices
reflect intrinsic value.
As EUGENE FAMA (1991) notes, market EFFICIENCY is a continuum. The

lower the transaction costs in a market, including the costs of obtaining
information and trading, the more efficient the market. In the United States,
reliable information about firms is relatively cheap to obtain (partly due to
mandated disclosure and partly due to technology of information provision) and
trading securities is cheap. For those reasons, U.S. security markets are thought
to be relatively efficient.
The informational efficiency of stock prices matters in two main ways.

First, investors care about whether various trading strategies can earn excess
returns (i.e., “beat the market”). Second, if stock prices accurately reflect all
information, new investment capital goes to its highest-valued use.
French mathematician Louis Bachelier performed the first rigorous analysis

of STOCK MARKET returns in his 1900 dissertation. This remarkable work
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documents statistical independence in stock returns—meaning that today’s

return signals nothing about the sign or magnitude of tomorrow’s return—and
this led him to model stock returns as a random walk, in anticipation of the EMT.
Unfortunately, Bachelier’s work was largely ignored outside mathematics until
the 1950s. One of the first to recognize the potential information content of stock
prices was John Burr Williams (1938) in his work on intrinsic value, which argues
that stock prices are based on economic fundamentals. The alternative view,
which dominated prior to Williams, is probably best exemplified by JOHN
MAYNARD KEYNES’s beauty contest analogy, in which each stock analyst
recommends not the stock he thinks best, but rather the stock he thinks most
other analysts think is best. In Keynes’s view, therefore, stock prices are based
more on speculation than on economic fundamentals. In the long run, prices
driven by speculation may converge to those that would exist based on economic
fundamentals, but, as Keynes noted in another context, “in the long run we are
all dead.”
Stock returns and their economic meaning received scant attention before
the 1950s because there was little appreciation of the role of stock markets in
allocating capital. This oversight had several contributing factors: (1) Keynes’s
emphasis on the speculative nature of stock prices led many to believe that stock
markets were little more than “casinos,” with no essential economic role; (2)
many economists during the GREAT DEPRESSION and the immediate post–World
War II era emphasized government-directed capital investment; and (3) the
modern corporation, and the resulting need to raise large sums of capital, was a
relatively recent development. But the invention of computing power in the
1950s, which made rigorous empirical analysis with large data sets more feasible,
brought renewed attention from academic researchers.
In 1953, British statistician Maurice Kendall documented statistical

independence in weekly returns from various British stock indices. Harry Roberts
(1959) found similar results for the Dow Jones Industrial Index, and later,
Eugene Fama (1965) provided comprehensive evidence not only of statistical
independence in stock returns, but also that various techniques of “chartists”
(i.e., technical analysts) had no predictive power. While this evidence was
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generally viewed as supporting the random walk model of stock returns, there
was no formal understanding of its economic meaning, and some mistakenly
took this randomness as an indication that stock returns were unrelated to
fundamentals, and thus had no economic meaning or content. Fortunately, the
timely work of PAUL SAMUELSON (1965) and Benoit Mandelbrot (1966) explained
that such randomness in returns should be expected from a well-functioning
stock market. Their key insight was that COMPETITION implies that investing in
stocks is a “fair game,” meaning that a trader cannot expect to beat the market
without some informational advantage. The essence of the “fair game” is that
today’s stock price reflects the expectations of investors given all the available
information. Therefore, tomorrow’s price should change only if investors’
expectations of future events change, and such changes should be randomly
positive or negative as long as investors’ expectations are unbiased. This
revelation had its roots in the developing RATIONAL EXPECTATIONS theory of
macroeconomics, and thus, some economists refer to the EMT as the “rational
markets theory.” It was later recognized that the “fair game” model allows for
the expectation of a positive price change, which is necessary to compensate
risk-averse investors.
In 1970, Eugene Fama published his now-famous paper, “Efficient Capital

Markets: A Review of Theory and Empirical Work.” Fama synthesized the existing
work and contributed to the focus and direction of future research by defining
three different forms of market efficiency: weak form, semistrong form, and
strong form. In a weak-form efficient market, future returns cannot be predicted
from past returns or any other market-based indicator, such as trading volume or
the ratio of puts (options to sell stocks) to calls (options to buy stocks). In a
semistrong efficient market, prices reflect all publicly available information about
economic fundamentals, including the public market data (in weak form), as well
as the content of financial reports, economic forecasts, company announcements,
and so on. The distinction between the weak and semistrong forms is that it is
virtually costless to observe public market data, whereas a high level of
fundamental analysis is required if prices are to fully reflect all publicly available
information, such as public accounting data, public information regarding
competition, and industry-specific knowledge. In strong form, the highest level of
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market efficiency, prices reflect all public and private information. This extreme
form serves mainly as a limiting case because it would require even the private
information of corporate officers about their own firm to be already captured in
stock prices.
A simple way to distinguish among the three forms of market efficiency is

to recognize that weak form precludes only technical analysis from being
profitable, while semi-strong form precludes the profitability of both technical
and fundamental analysis, and strong form implies that even those with
privileged information cannot expect to earn excess returns. Sanford Grossman
and JOSEPH STIGLITZ (1980) recognized that an extremely high level of market
efficiency is internally inconsistent: it would preclude the profitable opportunities
necessary to motivate the very security analysis required to produce information.
Their main point is that market frictions, including the costs of security analysis
and trading, limit market efficiency. Thus, we should expect to see the level of
efficiency differ across markets, depending on the costs of analysis and trading.
Although weak-form efficiency allows for profitable fundamental analysis, it is not
difficult to imagine a market that is less than weak form but still relatively
efficient in some sense. Thus, it can be useful to define the efficiency of a
market in a more general, continuous sense, with faster price reaction equating
to greater informational efficiency.
While most of the empirical research of the 1970s supported semistrong

market efficiency, a number of apparent inconsistencies arose by the late 1970s
and early 1980s. These so-called anomalies include, among others, the “small-
firm effect” and the “January effect,” which together document the tendency of
small-capitalization stocks to earn excessive returns, especially in January. But
financial economists today attribute most of the anomalies to either
misspecification of the asset-pricing model or market frictions. For example, the
small-firm and January effects are now commonly perceived as premiums
necessary to compensate investors in small stocks, which tend to be illiquid,
especially at the turn of the year. Fama (1998) also notes that the anomalies
sometimes involved underreaction and sometimes overreaction and, thus, could
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be viewed as random occurrences that often went away when different time
periods or methodologies were used.
More serious challenges to the EMT emerged from research on long-term

returns. Robert Shiller (1981) argued that stock index returns are overly volatile
relative to aggregate dividends, and many took this as support for Keynes’s view
that stock prices are driven more by speculators than by fundamentals. Related
work by Werner DeBondt and Richard Thaler (1985) presented evidence of
apparent overreaction in individual stocks over long horizons of three to five
years. Specifically, the prices of stocks that had performed relatively well over
three- to five-year horizons tended to revert to their means over the subsequent
three to five years, resulting in negative excess returns; the prices of stocks that
had performed relatively poorly tended to revert to their means, resulting in
positive excess returns. This is called “reversion to the mean” or “mean
reversion.” Lawrence Summers (1986) showed that, in theory, prices could take
long, slow swings away from fundamentals that would be undetectable with
short horizon returns. Additional empirical support for mispricing came from
Narasimhan Jegadeesh and Sheridan Titman (1993), who found that stocks
earning relatively high or low returns over three- to twelve-month intervals
continued the trend over the subsequent three to twelve months.
These apparent inefficiencies contributed to the emergence of a new

school of thought called behavioral finance (see BEHAVIORAL ECONOMICS), which
countered the assumption of rational expectations with evidence from the field of
psychology that people tend to make systematic cognitive errors when forming
expectations. One such error that might explain overreaction in stock prices is
the representative heuristic, which holds that individuals attempt to identify
trends even where there are none and that this can lead to the mistaken belief
that future patterns will resemble those of the recent past. On the other hand,
momentum in stock returns may be explained by anchoring, the tendency to
overweight initial beliefs and underweight the relevance of new information. It
follows that momentum observed over intermediate horizons could be
extrapolated over longer time horizons until overreaction develops. This does not,
however, imply any easily exploitable trading strategy, because the point where
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momentum stops and overreaction starts will never be obvious until after the
fact.
Resistance to the view that stock prices systematically overreact, as well

as to the behavioral interpretation of this evidence, came along two fronts. First,
Fama and Kenneth French (1988) found that stocks earn larger returns during
more difficult economic conditions when capital is relatively scarce and the
default-risk premiums in INTEREST RATES are high. Higher interest rates initially
drive prices down, but eventually prices recover with improved business
conditions, and hence the mean-reverting pattern in aggregate returns. Second,
adherents of the EMT argued that the cognitive failures of certain individuals
would have little influence on stock markets because mispriced stocks should
attract rational investors who buy underpriced and sell overpriced stocks.
Critics of the EMT responded to both of these charges. In response to the

Fama and French evidence, James Poterba and Lawrence Summers argued that
the mean-reverting pattern in aggregate index returns is too volatile to be
explained by cyclical economic conditions alone. They claimed that excessive
mean reversion resulted from prices straying from fundamentals, similar to
Shiller’s excess volatility story. As to whether the marginal trader is fully rational
or subject to systematic cognitive errors, Andrei Shleifer and Robert Vishny
(1997) and others noted that, while market efficiency requires traders to act
quickly on their information out of fear of losing their advantage, mispricing can
persist because it offers few opportunities for low-risk arbitrage trading. For
example, how should one have responded during the bubble in INTERNET-based
stocks of the late 1990s? Most of these stocks were difficult to short sell, and
even if it was possible, a well-informed, fully rational short seller faced the risk
that less than fully rational traders (also known as “noise traders”) would
continue to move prices away from fundamentals. Thus, the market will not
necessarily correct as soon as rational traders recognize mispricing. Instead, the
correction may come only after the mispricing becomes so large that noise
traders lose confidence in the trend or rational traders act in response to the
additional risk introduced by the noise traders.
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The most striking examples of apparent inconsistencies with the EMT are
the 1987 stock market crash and the movement of Internet stock prices
beginning in the late 1990s. Some economists, admittedly a minority, believe
that the 1987 crash and the Internet run-up and fall are consistent with market
efficiency. For example, Mark Mitchell and Jeffry Netter (1989) argued that the
large market decline in the days before the market crash in 1987 was triggered
by an initially rational response to an unanticipated tax proposal, which in turn
triggered a temporary liquidity crunch (or panic) due to much higher sales
volumes than the market was prepared to handle. The exchanges, traders, and
regulators learned from this experience making markets more efficient. Burton
Malkiel (2003a, 2003b), analyzing the Internet bubble, notes that Internet
company values were difficult to determine, and while traders in most cases
were wrong after the fact, there were no obvious unexploited arbitrage
opportunities.
Regardless of whether it is the exception or the rule, the favorable market

conditions of the late 1990s for technology and Internet-based stocks illustrate
the stock market’s critical role in resource allocation. A firm whose stock has
appreciated rapidly finds it easier to raise additional funds through a secondary
offering because higher prices mean a smaller percentage ownership of the firm
needs to be offered to raise a given amount of capital. Favorable conditions also
make it easier for privately held firms to raise funds through an initial public
offering (IPO) of stock. Furthermore, a so-called hot IPO market entices venture
capital firms to invest funds in hot industries and sectors in hopes of taking their
firms public in such a favorable market. Many view these favorable market
conditions as consistent with the market’s valuation of growth options and the
motivating incentive necessary to make the fundraising portion of venture
growth and creation possible. But while favorable market conditions can attract
the investment capital necessary to grow a fledgling new industry, the market for
technology and Internet-based stocks in the late 1990s appears to have
overheated and, in hindsight, directed too much investment capital toward this
sector. Thus, by the late 1990s, the return an investor in this sector could have
rationally expected had fallen below what economic conditions could justify, as
well as below what most investors actually anticipated.
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While prices may take long, slow swings away from fundamentals, the
EMT is still useful in at least two important ways. First, over shorter horizons,
such as days, weeks, or months, there is considerable evidence that the EMT can
explain the direction of stock price changes. That is, the response of stock prices
to new information reasonably approximates the change in the intrinsic value of
equity. Second, the EMT serves as a benchmark for how prices should behave if
capital investments and other resources are to be allocated efficiently. Just how
close markets come to this benchmark depends on the transparency of
information, the effectiveness of REGULATION, and the likelihood that rational
arbitragers will drive out noise traders. In fact, the informational efficiency of
stock prices varies across markets and from country to country. Whatever the
shortcomings of capital markets, there appears to be no better alternative means
of allocating investment capital. In fact, the PRIVATIZATION movement of the
1990s and early 2000s suggests that most governments, including China’s, now
recognize this fact. Thus, academic inquiry in this area is likely to focus more on
the conditions that explain and improve the informational efficiency of capital
markets than on whether capital markets are efficient.
Efficient Capital Markets By Steven L. Jones and Jeffry M. Netter

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MUTUAL FUND
AS A PART OF
CAPITAL MARKET
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A mutual fund is a type of financial vehicle made up of a pool of

money collected from many investors to invest in securities like stocks, bonds,
money market instruments, and other assets. Mutual funds are operated by
professional money managers, who allocate the fund's assets and attempt to
produce capital gains or income for the fund's investors. A mutual fund's portfolio
is structured and maintained to match the investment objectives stated in its
prospectus.
Mutual funds give small or individual investors access to professionally

managed portfolios of equities, bonds and other securities. Each shareholder,
therefore, participates proportionally in the gains or losses of the fund. Mutual
funds invest in a vast number of securities, and performance is usually tracked
as the change in the total market cap of the fund—derived by the aggregating
performance of the underlying investments.
 A mutual fund is a type of investment vehicle consisting of a portfolio of

stocks, bonds, or other securities.
 Mutual funds give small or individual investors access to diversified,
professionally managed portfolios at a low price.
 Mutual funds are divided into several kinds of categories, representing the
kinds of securities they invest in, their investment objectives, and the type
of returns they seek.
 Mutual funds charge annual fees (called expense ratios) and, in some
cases, commissions, which can affect their overall returns.
 The overwhelming majority of money in employer-sponsored retirement
plans goes into mutual funds.
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CONCEPTS
OF
MUTUAL FUND
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Mutual funds pool money from the investing public and use that money to
buy other securities, usually stocks and bonds. The value of the mutual fund
company depends on the performance of the securities it decides to buy. So,
when you buy a unit or share of a mutual fund, you are buying the performance
of its portfolio or, more precisely, a part of the portfolio's value. Investing in a
share of a mutual fund is different from investing in shares of stock. Unlike stock,
mutual fund shares do not give its holders any voting rights. A share of a mutual
fund represents investments in many different stocks (or other securities) instead
of just one holding.
That's why the price of a mutual fund share is referred to as the net asset
value (NAV) per share, sometimes expressed as NAVPS. A fund's NAV is derived
by dividing the total value of the securities in the portfolio by the total amount of
shares outstanding. Outstanding shares are those held by all shareholders,
institutional investors, and company officers or insiders. Mutual fund shares can
typically be purchased or redeemed as needed at the fund's current NAV,
which—unlike a stock price—doesn't fluctuate during market hours, but is settled
at the end of each trading day.
The average mutual fund holds hundreds of different securities, which

means mutual fund shareholders gain important diversification at a low price.
Consider an investor who buys only Google stock before the company has a bad
quarter. He stands to lose a great deal of value because all of his dollars are tied
to one company. On the other hand, a different investor may buy shares of a
mutual fund that happens to own some Google stock. When Google has a bad
quarter, she loses significantly less because Google is just a small part of the
fund's portfolio.
How Mutual Funds Work

A mutual fund is both an investment and an actual company. This dual
nature may seem strange, but it is no different from how a share of AAPL is a
representation of Apple Inc. When an investor buys Apple stock, he is buying
partial ownership of the company and its assets. Similarly, a mutual fund investor
is buying partial ownership of the mutual fund company and its assets. The
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difference is that Apple is in the business of making smartphones and tablets,

while a mutual fund company is in the business of making investments.
Investors typically earn a return from a mutual fund in three ways:
1. Income is earned from dividends on stocks and interest on bonds held in

the fund’s portfolio. A fund pays out nearly all of the income it receives
over the year to fund owners in the form of a distribution. Funds often
give investors a choice either to receive a check for distributions or to
reinvest the earnings and get more shares.
2. If the fund sells securities that have increased in price, the fund has
a capital gain. Most funds also pass on these gains to investors in a
distribution.
3. If fund holdings increase in price but are not sold by the fund manager,
the fund's shares increase in price. You can then sell your mutual fund
shares for a profit in the market.
If a mutual fund is construed as a virtual company, its CEO is the fund

manager, sometimes called its investment adviser. The fund manager is hired by
a board of directors and is legally obligated to work in the best interest of mutual
fund shareholders. Most fund managers are also owners of the fund. There are
very few other employees in a mutual fund company. The investment adviser or
fund manager may employ some analysts to help pick investments or perform
market research. A fund accountant is kept on staff to calculate the fund's NAV,
the daily value of the portfolio that determines if share prices go up or down.
Mutual funds need to have a compliance officer or two, and probably an attorney,
to keep up with government regulations.
Most mutual funds are part of a much larger investment company; the
biggest have hundreds of separate mutual funds. Some of these fund companies
are names familiar to the general public, such as Fidelity Investments, The
Vanguard Group, T. Rowe Price, and Oppenheimer Funds.
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CATEGORIES
OF
MUTUAL FUND
Cantilan Campus
Four broad types of mutual funds: Equity (stocks), fixed-income (bonds),

money market funds (short-term debt), or both stocks and bonds (balanced or
hybrid funds).
1. EQUITY FUNDS
Equity mutual funds buy stocks of a collection of publicly traded

companies. Most mutual funds on the market (55%) are some type of equity
fund, according to the Investment Company Institute. Equity funds have a higher
potential for growth but more potential volatility in value. The younger you are,
the more your portfolio should include equity funds, financial planners advise, as
you have more time to weather inevitable ups and downs in market value.
Equity mutual funds can be sliced and diced in several ways depending on
the goals of the fund:
 Funds Based on Company Size
Some funds focus only on “large cap” or “small cap” companies, which
refers to the market capitalization, or value, of the companies:
 Large-cap fund: Companies with a market value of $10 billion or greater.

 Mid-cap fund: Companies worth $2 billion to $10 billion.
 Small-cap fund: Companies worth $300 million to $2 billion.
 Industry or Sector Funds
These mutual funds focus on a particular industry, such as technology,

oil and gas, aviation or health care. For example, investors who want
exposure to gains by companies like Google and Apple could put money in a
technology fund. Ownership in different sector funds can help diversify your
portfolio, so if one industry is hit hard (like the bursting of the dot-com stock
bubble in 2000), those losses can be offset by gains in other sectors.
 Growth and Value Funds
The investment style of the fund is another mutual fund differentiator.

Growth funds, as the name suggests, seek stocks that fund managers
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believe will have better than average returns. Value funds look for companies
whose stock is (you guessed it) undervalued by the market.
 International, Global and Emerging Market Funds
Geographic location can also determine how mutual funds are built.
International funds invest in companies doing business outside the U.S.,
while global funds invest in companies doing business both in the U.S. and
abroad. Emerging market funds target countries with small but growing
markets.
2. BOND FUNDS
Bond funds are the most common type of fixed-income mutual funds,
where (as the name suggests) investors are paid a fixed amount back on their
initial investment. Bond funds are the second most popular mutual fund type,
accounting for about one of every five funds on the market, according to the ICI.
Rather than buy stocks, bond funds invest in government and corporate
debt. Considered a safer investment than stocks, bond funds have less potential
for growth than equity funds.
Just as advisors say equity funds favor the young, investors nearing
retirement should have more bond funds in their portfolio to protect their nest
egg while earning more interest than sitting that cash in a bank savings account.
3. MONEY MARKET FUNDS
Money market mutual funds are fixed-income mutual funds that invest in
high-quality, short-term debt from governments, banks or corporations.
Examples of assets held by these funds include U.S. Treasurys, certificates of
deposit and commercial paper. They are considered one of the safest
investments and make up 15% of the mutual fund market, according to the ICI.
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4. BALANCED FUNDS
Also known as asset allocation funds, these investments are a combination

of equity and fixed-income funds with a fixed ratio of investments such as 60%
stocks and 40% bonds. The best-known variety of these funds are target-date
funds, which automatically reallocate the ratio of investments from equities to
bonds the closer you get to retirement.
5. OTHER MUTUAL FUNDS
 Index Funds
An index fund is a type of mutual fund whose holdings match or track

a particular market index, such as the S&P 500. Index funds have exploded
in popularity in recent years, thanks to the rise of passive investing strategy,
which, over time, typically earns better returns than an actively managed
approach. Like equity funds, index funds can vary by company size, sector
and location.
 Specialty or Alternative Funds
This catch-all category of funds includes hedge funds, managed

futures, commodities and real estate investment trusts. There is also growing
investor interest in corporate socially responsible mutual funds, which avoid
investing in controversial industries like tobacco or firearms and instead focus
on funding companies with strong environmental and labor practices.
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INVESTMENT STRATEGIES
FOR
MUTUAL FUND
Cantilan Campus
Mutual funds are a convenient way to invest your money. Even if you’re
starting with small sums, you get the benefit of a professional fund manager who
manages your money and decides on which stocks or bond to invest in for you.
However, you as an investor should also follow some strategies to build more
corpus by investing your monies into mutual funds.
Here are five strategies which you should follow to make more money by
investing in mutual funds.
Strategy 1: Diversify your investment
The best way to generate optimum risk-adjusted returns from mutual

funds is to build a diversified mutual fund portfolio consisting of multiple asset
classes. Doing so also helps you maintain steady return. Manish Kothari -
Director & head of mutual funds, Paisabazaar said that the asset allocation and
fund selection has to be done on the basis of your financial goals, investment
horizon and risk appetite. “However, while doing so, avoid investing in too many
funds as it might be cumbersome to track their performances,” he cautioned.
Strategy 2: Purchase direct plans
Why give broker or agent a brokerage amount on your ongoing

investment when you have an option to buy funds directly. You can easily
purchase any of the schemes by visiting the desired AMC website or can make
the investment through MF Utility website for direct buying. “Prefer direct plans
of mutual funds over their regular plans as their lower expense ratio will
translate into higher returns over the long term,” said Kothari.
Strategy 3: Opt for SIP mode
SIP or Systematic Investment Plan is an investment strategy which helps

an investor ensuring them to do regular and disciplined investing. Through
rupee-cost averaging, it eliminates the need for market timing and also, helps
reap greater benefits from the power of compounding too. You can invest a very
small amount as low as of Rs 500 on monthly basis, which makes the SIP’s
strategy as one of the most attractive modes to pool your money in markets.
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Strategy 4: Age-wise asset class investing
Make your investment in equity and debt funds as per your increasing age.
So, whatever your current age is, you should minus it from 100 and invest the
same percentage of your fund in equity assets. However, slight variation in
percentage can be made as per one’s risk-taking capacity.
If you are a little aggressive investor than you can increase the equity
concentration to a slightly higher level than needed. “The right way to invest is
to split your investments between debt and equity funds. What percentage
should you invest in each? A simple, yet the effective rule of thumb to follow is
that you debt allocation should be your age minus 10,” said Kunal Bajaj is CEO &
founder of Clearfunds.com.
Strategy 5: Periodic Review
Ensure that you taking a periodical review of your fund’s performance and
also, you are rebalancing your portfolio according to the changes in your age,
risk appetite and financial goals. Doing so, makes your investments remain active
as per the market conditions which helps in generating a decent return on your
overall portfolio throughout the investment tenure. Remain invested until you
achieve your financial goal successfully on time.
Cantilan Campus
REFERENCE
Cantilan Campus
https://imarticus.org/introduction-capital-market-blog/
http://www.tradechakra.com/economy/philippines/capital-markets-in-philippines-
245.php
https://edge.pse.com.ph/companyInformation/form.do?cmpy_id=478
https://www.econlib.org/library/Enc/EfficientCapitalMarkets.html
https://www.investopedia.com/terms/m/mutualfund.asp
https://www.investor.gov/introduction-investing/basics/investment-
products/mutual-funds-and-exchange-traded-funds-etfs
https://www.nerdwallet.com/blog/investing/what-are-the-different-types-of-
mutual-funds/
https://www.moneycontrol.com/news/business/mutual-funds/five-strategies-
which-you-should-follow-to-make-more-money-by-investing-in-mutual-funds-
2573147.html
https://www.philstar.com/business/2017/08/20/1731024/deepening-capital-
markets-philippines#80571RXsf5VDD6vG.99
https://asianbankingandfinance.net/investment-banking/commentary/5-factors-
affecting-investments-attracted-capital-markets

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Republic of the Philippines

SURIGAO DEL SUR STATE UNIVERSITY

Mr. Euar Janley Espura

1) Introduction to Capital Market

2) Role of Capital Market in the Philippines

3) Factors Affecting Capital Market in the Philippines

4) Philippines Stock Exchange Overview

5) Capital Market Efficiency

6) Mutual Fund as a part of Capital Market

7) Concepts of Mutual Fund

8) Categories of Mutual Fund

9) Investment Strategies for Mutual Fund

This process is basically known as the IPO or Initial Public Offering.

A lot of people know of capital markets as stock exchanges. These are

These secondary markets take place, subsequently after the primary

ROLE OF CAPITAL MARKET

As a prerequisite to the financial liberalization processes, stabilization

A large number of Asian emerging markets have launched a series of

In order to promote its integration into other international stock markets,

Highlighted below are some of these.

CCP mitigates counter-party risk, which means it mitigates potential

(redundancy), a system becomes more reliable. Cost is controlled by improving

It is not an exaggeration to state that technology is one of the most

It is noteworthy that the Securities and Exchange Commission (SEC),

Theoretically, the profit opportunities represented by the existence of

As EUGENE FAMA (1991) notes, market EFFICIENCY is a continuum. The

The informational efficiency of stock prices matters in two main ways.

French mathematician Louis Bachelier performed the first rigorous analysis

documents statistical independence in stock returns—meaning that today’s

In 1953, British statistician Maurice Kendall documented statistical

In 1970, Eugene Fama published his now-famous paper, “Efficient Capital

A simple way to distinguish among the three forms of market efficiency is

While most of the empirical research of the 1970s supported semistrong

More serious challenges to the EMT emerged from research on long-term

These apparent inefficiencies contributed to the emergence of a new

Resistance to the view that stock prices systematically overreact, as well

Critics of the EMT responded to both of these charges. In response to the

Regardless of whether it is the exception or the rule, the favorable market

Efficient Capital Markets By Steven L. Jones and Jeffry M. Netter

A mutual fund is a type of financial vehicle made up of a pool of

Mutual funds give small or individual investors access to professionally

 A mutual fund is a type of investment vehicle consisting of a portfolio of

The average mutual fund holds hundreds of different securities, which

How Mutual Funds Work

difference is that Apple is in the business of making smartphones and tablets,

Investors typically earn a return from a mutual fund in three ways:

1. Income is earned from dividends on stocks and interest on bonds held in

If a mutual fund is construed as a virtual company, its CEO is the fund

Four broad types of mutual funds: Equity (stocks), fixed-income (bonds),

Equity mutual funds buy stocks of a collection of publicly traded

 Funds Based on Company Size

 Large-cap fund: Companies with a market value of $10 billion or greater.

 Industry or Sector Funds

These mutual funds focus on a particular industry, such as technology,

 Growth and Value Funds

The investment style of the fund is another mutual fund differentiator.

 International, Global and Emerging Market Funds