Profile of Mutual Fund Market in the Philippines vis-à-vis India

Pranjal MehtaRoll No: 871

What are mutual funds?

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.”

Classification

Mutual funds are classified into the following: 

Stock fund- 90% of the fund is invested in stocks or equities

Balanced fund- 45% invested in stocks and 45% in fixed-income instruments

Bond fund- 90% invested in fixed income instruments such as government securities and corporate papers

Money market fund- placed in fixed-income short term funds

Workings of the mutual fund

Depending on the type of mutual fund, a professional fund manager invests the gathered funds in stocks, government securities, and other financial instruments.  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. These gains are reflected in the NET ASSET VALUE (or price) of each share of the mutual fund.

Investment in Philippines

In the Philippines: If you choose to invest in a mutual

fund exclusively, the initial deposit that you can start with is P5,000. You can then choose to invest P1,000 monthly. 

Types of MF in the Philippines

Advantages in choosing MF Gives an average annual returns of 8% to

20%. Returns are not guaranteed. Medium Risk – Highly convenient since a

professional fund manager takes care of the fund

Medium Risk – The fund is diversified Medium Risk – Grants you opportunity to

invest in more than one company It’s affordable because you will only pay P5,000 or P10,000 to start investing.

Ideal for your medium to long term financial goals.

1. Money Market Funds - Super Short-term (one year or less) 

- invest in fixed-income securities - very liquid so you can tap into them

as needed- growth of your investment is

conservative- low-risk 

2. Bond Funds - Short-term (1-5 years) - invest in fixed-income securities like government bonds or corporate papers issued by solid Philippines companies - it's like you're lending money to the government or to the solid companies and they promise to pay you a guaranteed (low) interest rate-  growth of your investment is conservative- low-risk 

3. Balanced Funds - Medium-term (6-9 years) 

- combination of bond funds & equity funds 

- moderately aggressive - higher growth potential than bonds

but lower growth potential than equity funds 

Stocks/Equity Funds - Long-term (10 years or more) 

- your money is invested by buying shares of "ownership" of reputable Philippines companies listed in the Philippine Stock Exchange 

- you become a part-owner of the company you bought shares from 

- high risk because if the company you invested in is a growing one, you get great returns;

- highest possibility of growth 

Opening a mutual fund account in the Philippines

Before anything else, the investor is given an assessment by answering a form usually called Investor Profile Questionnaire. From the result or score, he could know what type of investor he is (conservative, moderate, aggressive) and he could also choose what type of MF is suitable for him.

The Mutual Fund licensed representative or adviser is usually the one who will assist an investor in opening an account and choosing an account appropriate for him. They would tell the investor everything they need to know and tackle about the investment they are getting into. They would also advise and give recommendations as to what type of mutual fund suitable for their financial status and goal. It’s important to read and understand the fund’s prospectus before you start your investment.

Prospectus of MFIn reviewing the prospectus, one should focus on the following: - investment objective - risks in investing in a particular fund - investment management and bonus fees, in case of asset management firms - other fund operating expenses like fund administration, transfer agent, custodian, audit and legal fees - entry/exit fees covering the period they are applicable - track record of the fund and the asset management company - background of the officers and directors of the fund - background of the officers and directors of the asset management company

Statistics

As of September 30, 2010, there are a total of 43 mutual funds in the country, broken down as follows: Category:     Equity Funds (PhP) 8 Equity Funds (USD) 1Balanced Funds (PhP) 7 Balanced Funds (USD) 1Bond Funds (PhP) 10 Bond Funds (USD 9 Bond Funds (Euro) 2 Money Market (PhP) 5    

TOTAL 43

Mutual Fund Market in India

From a single-player monopoly in 1964, the Indian mutual fund industry has evolved into a high-growth and competitive market on the back of favourable economic and demographic factors.

As of August 2012, 44 asset management companies (AMCs) were operating in India with assets under management (AUM) of INR 6.4 trillion. However, after several years of persistent growth, the industry witnessed consistent declines of 6.3 percent and 5.1 percent in its AUM during FY11 and FY12, respectively.

One of the reasons could be the changes in regulatory guidelines-example ban on entry load, stringent KYC norms, guidelines on transaction charges, tightening valuation and advertisement norms - which were introduced in a short span of time thus giving less time to the industry to adjust in the new environment.

Growth of the Indian MF Market Further, the penetration of mutual funds in

India (as measured by the AUM/GDP ratio) remains low at 4.7 percent as compared to 77.0 percent in the US, 41.1 percent in Europe and 33.6 percent in the UK. Mutual funds also constituted only 3.3 percent of households’ financial savings in FY10, which further contracted to -1.2 percent and -1.1 percent in FY11 and FY12, respectively, due to large redemption and capital losses

Through its recent initiatives and announcements, SEBI has given a much needed boost to the mutual fund sector but the industry is waiting for a long term initiative by the regulator that will put this sector amongst the most preferred instrument of investment.

Regulation

The Government of India enacted the Securities and Exchange Board of India Act, 1992 on 4 April 1992 which created the Securities and Exchange Board of India (SEBI).

SEBI issued a comprehensive set of regulations in 1993 and revised them again in 1996. These included regulations covering the Indian mutual fund industry.

All mutual funds in India today are regulated by SEBI. The Association of Mutual Funds of India (AMFI) is a self-governing association of Indian Mutual Funds that regulates its members' sales, distribution and communication practices.

Investors can invest in Indian mutual funds directly or through distributors under codes of practice developed by AMFI.

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