Pursuant to Republic Act No.

2629, otherwise known as the Investment Company Act (“ICA”)

and Republic Act No. 8799 otherwise known as the Securities Regulation Code (“SRC”)
the Commission is granted the authority to prescribe the regulation of investment companies,
and to require them to register with the Securities and Exchange Commission (“Commission”)
and to comply with certain standards including among others, the regular public disclosure of
financial condition, investment policies and objectives, and their fund portfolios as well as their
pricing and fees.

The Commission is also authorized to regulate Fund Managers and other parties involved in
the operation of investment companies.

Investment Company
A stock corporation primarily engaged or holds itself out as being engaged primarily, or
proposes to engage, in the business of investing, reinvesting and trading in securities
Investment companies are divided into open-end and closed-end companies, defined as
follows:
● "Open-end company" means an investment company which is offering for sale or has
outstanding any redeemable security of which it is the issuer.
● "Closed-end company" means any investment company which offers for sale affixed
number of non-redeemable securities which are offered in an initial public offering and
thereafter traded in an organized market as determined by the Commission and
Exchange

Classifications of Investment Company

An investment company may be classified by investment policy as either:
● Equity Fund – shall refer to an investment company with the objective to invest
predominantly in or hold equity investments
● Bond Fund or Fixed Income Fund – shall refer to an investment company which
invests in fixed income instruments such as bonds, treasury bills, certificates of deposit,
promissory notes, bills of exchange, debentures, etc. It should not invest in shares
except redeemable preferred shares or share warrants
● Balanced Fund – shall refer to an investment company that invests in both equity and
fixed income instruments. The respective investments in either equity or fixed income
shall not be less than thirty five percent (35%) but not more than sixty five percent (65%)
of the NAV of the investment company
● Feeder Fund – shall refer to an MFC that invests at least ninety percent (90%) of its
net assets in a single CIS established by another fund manager, asset management
company or fund operator, which shall not be a feeder fund
● Fund-of-Funds – shall refer to an MFC that invests at least fifty percent (50%) of its
net assets in more than one (1) CIS established by another fund manager/s, asset
management company/ies or fund operator/s
● Index Fund - shall refer to an investment company with an objective of providing
investors with a return that replicates or is linked to securities indices as disclosed in its
prospectus
 ● Money Market Funds – shall refer to an investment company that invests in short term
fixed income securities with a portfolio duration of one (1) year or less
● Multi-asset/Asset Allocation
● Fund – shall refer to an MFC that invests in a fixed or variable mix of both equity and
fixed income instruments, as well as cash and cash equivalents.

The above enumerations are not exclusive. There may be other classifications of funds based
on their investment policy that may be approved by the Securities and Exchange Commission.

Registration and Licensing

An Investment Company applying for incorporation with the SEC shall comply with the following
requirements:
● File documentary requirements for the registration of its Articles of Incorporation (AOI)
and By-Laws (BL);
● File SEC ICA Form 7-A and pay the filing fee of P10,000.00 plus LRF;
● The name of the corporation shall contain the word “Fund”;
● The primary purpose clause of the AOI shall provide that the corporation shall engage
in the business of investing, reinvesting or trading in securities or other investment
assets allowed under the Act and this Rules:
● All members of the Board of directors shall be Filipino citizens;
● It shall have a minimum subscribed and paid-up capital of Fifty Million Pesos
(P50,000,000.00). The Commission may grant a request for a lower paid-in capital
requirement if the Investment Company is one of or part of a group of investment
companies to be created or already in existence to be managed or under management
by the same Fund Manager with a track record of at least five years as such and
provided that the subscribed and paid-up capital shall not be lower than One Million
Pesos (P1,000,000.00)
● All shares shall be common and voting and, in general, redeemable in accordance with
the terms and conditions prescribed and disclosed in the Registration Statement. For
MFCs that will issue units, the unitholders shall have no voting rights but are entitled to
be notified of any material change to the Registration Statement and the subscription
agreement;
● The original proponents of a newly formed Investment Company, which is not related to
an existing fund or Fund Manager with a track record of at least five (5) years, shall not
be allowed to sell, transfer, convey, encumber or otherwise dispose of their securities
within twelve (12) months from the registration of the Investment Company
● An Investment Company shall not be required to comply with the minimum subscribed
and paid-up capital relative to the increase in its authorized capital stock
Definition of Terms

Assets Under Management (AUM)

Shall refer to the total market value of all the financial assets of an Investment Company
managed by a Fund Manager

Certified Investment Solicitor (CISo)

Shall refer to a natural person of legal age duly licensed by the Commission and appointed by
the Fund or the FM/MFD to solicit, sell or offer to sell the shares or units of an Investment
Company to the public.

Collective Investment Scheme (CIS)

Shall refer to an arrangement whereby funds are solicited from the investing public for the
purpose of investing, reinvesting and trading in securities or other assets allowed under the IRR

Credit Ratings
Shall refer to those ratings assigned to any entity that measures the creditworthiness of a
borrower or its capacity to fulfill its financial obligations. These ratings are derived after
considering all factors, and issued by a credit rating agency accredited by the Commission

Custodian
Shall refer to an independent third party entity duly authorized or accredited by the Bangko
Sentral ng Pilipinas or the Commission to engage in the business of custodial and safekeeping
of investment assets

FM/MFD
Shall refer to a Fund Manager who, aside from managing a Fund, also functions as a distributor
of the shares or units of the Investment Company and may no longer be required to secure a
separate license for the distribution of the shares or units of the Investment Company

Fund Manager (FM)

Shall refer to a registered entity with an Investment Company Adviser license that is engaged in
the business of managing the daily operations of an Investment Company in the investment,
administration and accounting of fund assets and the monitoring of the activities of third party
service providers such as custodian, transfer agent and distributors

Investment Assets or Eligible Assets

Shall refer to those assets in which the funds of the Investment Company may be invested in

Investors of the Fund

Shall refer to the shareholders or unitholders of the Investment Company who executed a
subscription agreement with the Investment Company or the Fund Manager to subscribe to the
shares
Investment Company Adviser
Shall refer to an Investment Company Adviser licensee who regularly advises or recommends
investment decisions with regard to the securities or other portfolio of the Investment Company
pursuant to an advisory contract with the Investment Company

Issuer
Is the originator, maker, obligor or creator of the security

Mutual Fund Company (MFC)

Shall refer to a registered open-end Investment Company that holds itself out as being engaged
primarily, or proposes to engage primarily, in the business of investing, reinvesting and trading in
securities. It is a company that pools the funds of individuals and institutional investors to form a
massive asset base which is entrusted to a full-time professional Fund Manager who develops
and maintains a diversified portfolio of security investments. It offers for sale or has outstanding
any redeemable securities of which it is the issuer

Mutual Fund Distributor (MFD)

Shall refer to a juridical person duly licensed or authorized by the Commission to distribute
shares or units of an Investment Company as either principal distributor or sub-distributor

Net Asset Value (NAV)

Shall refer to the aggregate value of each fund, either shares or units, as determined by the
market value of its underlying securities holdings, including any cash in the portfolio less
liabilities, computed at the close of the trading of securities for the day

Net Asset Value per Share or NAVps

Shall refer to the computed NAV on a per share basis at the close of the day. It is calculated by
dividing the Investment Company’s total net assets from the shares outstanding

Organized Market
Shall refer to an exchange, government securities market or an over-the-counter market that is
regulated by the relevant competent regulatory authority and where financial instruments are
regularly traded. It shall be of good repute and open to the public or a substantial number of
market participants.

Sales Load
Shall refer to the charge or commission on the cost of acquiring the shares or units of an
Investment Company

Solicitation
Shall refer to the act of providing information about a security or investment product being
offered for sale with the view of making another person a client or closing or bringing in a sale or
purchase of security or investment product
Transfer Agent
Shall refer to a juridical person duly licensed by the Commission as a transfer agent and
appointed by the Investment Company, or the fund Manager, to maintain an accurate registry for
recording the initial and subsequent transfer of securities

Mutual Fund
A Mutual Fund is an investment company that pools the funds of many individual and
institutional investors to form a massive asset base. The assets are then entrusted to a full-time
professional fund manager who develops and maintains a diversified portfolio of security
investments. People who buy shares of a mutual fund are its owners or shareholders. Their
purchases provide the money for a mutual fund to buy securities such as stocks and bonds. A
mutual fund can make money from its securities investments in two ways: a security can pay
dividends and interest to the fund, or a security can rise in value. The fund passes any
dividends, interest or profits on the sale of its portfolio securities, less fund expenses, to
shareholders in the form of distributions.

Types of Mutual Fund

In the Philippines, there are currently four basic types of mutual funds---stock (also called
equity), balanced, bond and money market funds.

● Bond funds invest primarily in bonds such as treasury notes issued by the Philippine
government and commercial papers issued by reputable companies in the Philippines.
Having a full basket of only fixed-income securities, bond funds provide capital
preservation while maintaining a conservative stance in terms of asset allocation.

● Money market funds also have a conservative stance since they have a full basket of
fixed

● income funds. The main difference lies in the term of investments of money market
fund investments, which is one year or less.

● Equity funds invest primarily in shares of stock issued by Philippine corporations. The
dominance of stock issues within the portfolio positions the fund to attain a more
aggressive rate of growth.

● Balanced funds invest in both shares of stocks and bonds, thereby accessing the
growth potential of stocks tempered with the presence of secure fixed-income
instruments. Professional fund managers create value for shareholders by providing
superior yields within controlled risk exposures.
Why Invest in a Mutual Fund?
Interest rates can be volatile and passive short-term investing can erode investment values due
to inflation. On the other hand, the stock market has historically outperformed both short and
long-term bank deposit rates. Unfortunately, not so many people are familiar with active
financial management and effective diversification. Through mutual funds, even investors with
limited resources can participate in combinations of these high yielding investment instruments
without the headache of personally selecting and monitoring a portfolio.

Mutual funds are ideal vehicles for growing money over time. It can be used as a savings
medium for retirement, education for a child, or building up a long-term cash fund for some
specific future financial objective. While largely thought of as a retail financial product, mutual
funds are also ideal instruments to augment the yields generated by organizational funds and
enhance their level of diversification. Mutual funds have been popular investments for pension
and trust programs, other employee benefit funding objectives, and institutional asset-liability
matching

Advantages in Investing in a Mutual Fund

Mutual funds provide a combination of benefits to investors which cannot be matched by other
investment instruments. These advantages are as follows:

Professional Management
One of the main attractions of mutual funds is that it affords its investors, particularly the small
ones, the services of full-time professional managers whose job is to analyze the various
investment products available in the market and select those that would give the best possible
returns to the fund and its shareholders.

Low Capital Requirement

Direct investments usually require substantial capital. The minimum investment amounts for
Treasury Bills and commercial paper, for instance, range from Php100,000 to Php 1 million
depending on the bank or investment house you are dealing with. This also holds true for
stocks because while an investor may be able to buy one “lot” (shares are sold in board lots of
10 to 1 million shares depending on the price at which these shares are traded) for as low as
Php1,000 to Php5,000, he may not find a stockbroker who will service his account because
they prefer to deal with high net worth individuals (rich people in layman's terms) or at least with
people who have substantially more than just Php5,000.00 to invest. In contrast, most mutual
funds in the Philippines require a minimum initial investment amount of only Php5,000.00 and
minimum additional investments of Php1,000.00.

Diversification
There is a saying that goes, “Do not put all your eggs in one basket.” This adage is especially
true in the world of investments which is full of uncertainties. There is no such thing as a “sure”
thing. An important investment principle that requires holding several securities to reduce the
risks associated with investing in individual securities is called diversification. When people
invest in a mutual fund, they achieve instant diversification because the fund is usually invested
in a wide array of securities.

Liquidity
Liquidity is the ability to readily convert investments into cash. Other investment products
require investors to find a buyer so that he can liquidate his investment. That is not the case
with mutual fund shares because the fund itself stands ready to buy back these shares at the
prevailing Net Asset Value Per Share. While the law provides that redemption proceeds must
be given within seven (7) banking days from the date of the redemption request, most funds are
able to pay the redemption proceeds within a day. Mutual funds are, therefore, considered very
liquid investments.

Safety
Safety is a very important consideration for most investors. Mutual funds are highly regulated by
the Securities and Exchange Commission under the Investment Company Act and its
implementing rules. They are prohibited from investing in particular investment products and
engaging in certain transactions (this is discussed in greater detail in a latter section). They also
have to submit regular reports to the SEC as well as to their shareholders. As mentioned
earlier, all of the fund's assets must be held by a custodian bank for safekeeping.

Potential Higher Returns

Because a mutual fund is managed as a single portfolio, it is able to take advantage of certain
economies of scale. For instance, with its millions under management, it can negotiate for lower
stock brokerage fees or command higher interest rates on fixed income investments. In the end,
however, it is still the investment adviser who really makes the big difference between making
direct investments and investing in mutual funds because very few individual investors can
match the experience and skill of full time professional fund managers.

Convenience
In other countries, mutual funds can be purchased directly from a funds or through a broker,
financial planner, bank or insurance agent, by mail, over the phone and increasingly over the
internet. The popularity of mutual funds in the Philippines is fast catching up. It may be a matter
of time for this level of convenience to be a reality in the country. Funds also offer a variety of
other services, including monthly or quarterly account statements, tax information, and 24-hour
phone and computer access to fund and account information.