Mutual Fund (Notes) PDF

**mutual fund** **1^ST^SEM/MIDTERM** **FINANCIAL MANAGEMENT INTRODUCTION** **WHAT IS FINANCE?** - Finance is the study of money management and the process of acquiring needed funds---including personal finance, corporate finance, and public finance. - It is simply how an individual o...

**mutual fund** **1^ST^SEM/MIDTERM** **FINANCIAL MANAGEMENT INTRODUCTION** **WHAT IS FINANCE?** - Finance is the study of money management and the process of acquiring needed funds---including personal finance, corporate finance, and public finance. - It is simply how an individual or an organization manages its financial resources. It can include borrowing, investing, lending, budgeting, saving, spending, and forecasting (Janet Berry Johnson). **WHAT IS FINANCIAL?** Financial, fiscal, monetary, and pecuniary refer to matters concerned with money. Financial usually refers to money matters or transactions of some size or importance: a financial wizard. "Dean Carlos Yulo has a strong financial background" **FINANCIAL MANAGEMENT** - The strategic planning and management of a person\'s or an organization\'s finances to better match their financial situation with their aims and objectives is known as financial management. - Financial management\'s goal is to advise organizations or individuals on matters that have an impact on their current and future financial stability. Financial management experts will evaluate accounts and investments in addition to a variety of other financial data in order to give sound advice and assist clients in reaching their objectives. **HOW TO LESSEN FINANCIAL RISK?** TIPS: - Financial literacy - Assess your risk - Diversification - Insurances - Creating emergency funds - Minimize debt - Be efficient and effective - Proper budgeting **INVESTMENT** Assets-Setting aside- to earn profit money, then enjoy An asset acquired or invested in to build wealth and save money from the hard-earned income or appreciation. **WHY SHOULD YOU INVEST?** - Beat inflation (*rate of which rate of increase in prices over a given period of time*) - Deal with taxes - Grow your money - Preserve capital - Appreciate capital **WHERE TO INVEST?** - Stocks - Certificates of deposit - Insurance investment - Savings account - Real estate - Mutual funds **MUTUAL FUNDS** Mutual Funds are investment funds managed by professional managers who allocate the funds received from individual investors into stocks, bonds, and/or other asset. **mutual fund** **1^ST^SEM/MIDTERM** **MUTUAL FUND CONCEPTS** **MUTUAL FUNDS** A mutual fund is an investment vehicle that pools funds from investors and invests in equities, bonds, government securities, gold, and other assets. - Professionally managed investment funds. - "Money of a group" **CONCEPT OF MUTUAL FUNDS** **OBJECTIVES OF A MUTUAL FUND** - To provide an opportunity for lower income groups to acquire without much difficulty, property in the form of shares. - To cater mainly of the need of individual investors who have limited means. - To manage investors\' portfolio that provides regular income, growth, safety, liquidity, tax advantage, professional management, and diversification. 1. **Diversification:** MFs naturally diversify across securities, assets, and geographies, reducing risk by avoiding concentration in a single investment. This approach creates a balanced and resilient portfolio. 2. **Capital Protection:** Certain funds, like money-market and liquid funds prioritize protecting capital. While safer, they offer lower returns, making them suitable for investors seeking stability and capital preservation. 3. **Capital Growth:** Equity Funds focus on capital growth by investing in stocks, offering a hedge against inflation. Despite higher returns, they come with higher risks, making them suitable for investors with a higher risk appetite. 4. **Saving Tax** **PROS OF MUTUAL FUNDS** 1. **Professional Management** - The basic advantage of funds - they are professionally managed, by well-qualified professional. - Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. - A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. **Portfolio Diversification** - "Do not put all your eggs in one basket." - 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. - It enables the investor to hold a diversified investment portfolio even with a small amount of investment like P1,000.00. 3. **Liquidity** - Liquidity is the ability to convert investments into cash readily. - Mutual fund liquidity refers to the ease of buying or selling fund units without significant impact on its NAV or market value. - A mutual fund is deemed more liquid if its investments include assets that are easy to buy or sell such as **money market instruments, govt bonds, and large-cap stocks**. 4. **Reduction/Diversification of Risks** - The potential losses are also shared with other investors. (Grouped / Pooled) - 5. **Safety** - 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. - They also have to submit regular reports to the SEC as well as to their shareholders. - All of the fund's assets must be held by a custodian bank for a safekeeping. 6. **Potential higher returns** 7. **Convenience** **CONS OF MUTUAL FUNDS** 1. 2. 3. 4. 5. 6. 7. - In the Philippines, mutual funds are usually run by insurance companies and other types of financial institutions. These companies have representatives who face the investors and explain to them how the process works. - If the investors are interested they can open an account with the mutual fund company. The mutual fund company assesses the risk profile of the investors. **WHO MANAGES THE MUTUAL FUND INVESTMENT?** - Mutual funds in the Philippines are actively managed by Professional Fund Managers. - If there is a need to buy and sell stocks and bonds, it is the professional fund manager who does all that. - **Investors** pay annual fees and other charges to cover for the operation of the fund. - The **fund managers** are usually assigned by the mutual fund board of directors. They are selected based on their credentials and experience in investing. - Fund managers' decision-making process is limited by the rules and regulations set by the board of directors and the Securities and Exchange Commissions (SEC). - All mutual funds in the Philippines are regulated by the SEC **mutual fund** **1^ST^SEM/MIDTERM** **WORLD OF MUTUAL FUNDS** **MUTUAL FUND** Mutual Funds are investment vehicles managed by professional managers who allocate the pooled funds received from individual investors into stocks, bonds, and/or other assets to attain common goals. **PARTIES TO MUTUAL FUNDS**  **MUTUAL FUND STRUCTURE** A diagram of a company Description automatically generated **STRUCTURE OF MUTUAL FUNDS** **CUSTODIAN** - Financial institution as safekeeper of physical securities. (Admin tasks) - Keeper of a tab on the corporate actions like **rights, bonus, and** **dividends** declared by the companies in which the fund has invested. - To prevent from being stolen or lost. **REGISTRARS** - A company or group of persons responsible for maintaining the records of mutual fund investors, including their personal and contact details **DISTRIBUTORS** - Also known as Mutual Fund Agents - **Financial intermediaries or individuals** who aid investors in acquiring and managing mutual fund investments. - Earn a commission for bringing investors into the schemes. **INVESTORS** - Any **person or other entity** (such as a firm or mutual fund) who commits capital with the expectation of receiving financial returns. - Mutual fund is a solution for investors who lack the time, the inclination or the skills to actively manage their investment risk in individual securities. They delegate this role to the mutual fund, while retaining the right and the obligation to monitor their investments in the scheme **mutual fund** **1^ST^SEM/MIDTERM** **TYPES OF MUTUAL FUNDS** **BASED ON MUTUAL FUNDS** 1. **Open-Ended Funds:** - Funds that can be purchased and sold throughout the year. - Fund managers try to invest in instruments with higher returns potential. - Buying and selling of open-ended funds are done as per the current Net Asset Value of the fund. 2. **Close Ended Funds** - **Close-ended funds can only be purchased during the new fund offer (nfo) period. The investment in close-ended schemes can be redeemed after fixed maturity. These funds are also listed on stock exchanges, but liquidity is generally very low.** 3. **Interval Funds:** - **These funds combine the features of open-ended and close-ended funds. The fund house opens the fund for buying and selling at intervals. The fund houses generally repurchase the units from the investors during the interval period if the investor wants to exit.**  **BASED ON ASSET** 1. **Equity Funds** - **Stocks** - **Invest in shares of companies.** - **Aim for capital appreciation** 2. **DEBT FUNDS** - Invest in bonds, providing a steady income. - They include categories like Government Bond Funds and Corporate Bond Funds 3. **Money-Market Funds** - **Money market funds invest in low-risk, short-term securities, such as treasury bills and commercial paper.** - **Safest types of mutual funds** 4. **Hybrid Funds** - **Blend both stocks and bonds, like balanced funds that aim for growth and stability in a single package.** - **Mixed of assets** A close-up of a company\'s advertisement Description automatically generated **BASED ON RISKS** 1. **Low Risks Funds** - **Debt-oriented funds with low risk to safeguard the invested money.** - **Aim for income generation with a slightly higher risk than very low risk options.** - **Suitable for investors with a slightly higher risk tolerance.** - **Examples: see bonds** 2. **Moderate Risk Funds** - **Provide a balanced composition of investment in both equity and debt with moderate risk and return.** - **Hybrid fund, conservative fund, balanced fund** - **examples: see balanced** 3. **High Risk Funds** - **Invest majorly in equity and equity related instruments with major investment objective of growth and capital appreciation.** - **Examples: see equity** 4. **Very Low Risks Funds** - **Very low risk funds, like money market funds, primarily invest in much lower-risk securities.** - **these are ideal for conservative investors seeking capital preservation and minimal fluctuations in the investment\'s value.** - **Examples: see money market** **BASED ON SPECIALITY** 1. **Sector Funds** - **Open-ended equity scheme investing in a specific sector.** - **Banks, power, infrastructure, pharmaceutical, technology, real estate.** - **Riskier -- if investment does not perform well.** 2. **Theme Funds** - **Open-ended equity scheme investing in line with an investment theme.** - **Examples: investment in companies related to infrastructure, construction, cement, steel, power, etc.** 3. **Fund of Funds** - **Open-ended equity scheme investing in line with an underlying fund.** - **Instead of investing in a pool of securities like stocks and bonds, buys shares in other funds.** 4. **Contra Fund** - **A form of mutual fund that invests in the opposite direction of the market.** - **Unique. Not trending or not prevailing.** - **Fund manager invests mostly in equities of companies that are not performing well in the short term.** - **The idea is to capitalize on distorted valuations and buy stocks at a cost lower than their fundamental value.** - **It is important to note here that these funds tend to perform better over the long term and are not ideal for short-term investments.** **BASED ON INVESTMENT GOALS** 1. **Growth Funds** - **Growth funds focus on capital appreciation by primarily investing in stocks of companies with high growth potential.** - **suited for long-term investors seeking substantial returns.** 2. **Income Funds** - **Income funds emphasize regular income generation by investing in bonds, fixed-income securities or dividend-yielding stocks.** - **They suit investors looking for a steady income stream** 3. **Liquid Funds** - **Invest in securities with residual maturity of up to 91 days. These funds do not have a lock-in period.** - **They are very low risk and provide moderate returns on investment.** - **Investors who have surplus capital and want to invest for a short period of time can opt for liquid funds.** 4. **Pension Funds** - **Aim to create a corpus for retirement by investing in a mix of assets. They cater to individuals planning for a secure post retirement financial future.** - **Examples: pera (personal equity retirement account, vul insurance** **BASED ON INVESTMENT STYLES** **1. Active Funds** - **Investing in actively managed funds is where a fund manager or a management team makes decisions about how to invest the fund\'s money.** - **The job of an active fund manager is to choose which investments to hold within the fund.** - **They aim to outperform their fund\'s stated benchmark or index.** **2. Passive Funds** - **Means investing in funds that aim to match the returns of a specific market or index. They don\'t try to beat it. They simply replicate the movement of the market they\'re tracking.** - **Mirror the performance of market index to maximize returns.** - **Most common form: index funding -- don't require fund manager to actively select investments, instead vehicle buys a broad representation of the securities in an index.** **BASED ON GEOGRAPHY** 1. **Domestic Funds** - **Schemes launched with the view to mobilise the savings of the citizens of the country.** - **Invest in securities traded within the country.** 2. **International Funds** - **Investing in international markets.** - **Example: eastspring investment** **INVESTMENT Modes In Mutual funds Lump Sum and sip** **What Suits Your Purpose, and When?** **LUMP SUM** - a one-time payment made in full at the beginning of an investment period. **SYSTEMATIC INVESTMENT PLAN** - a plan where investors make regular, equal payments into a **mutual fund, trading account, or retirement account.** - **mutual fund** **1^ST^SEM/MIDTERM** **concept and role of mutual fund** **MARK TO MARKET** Mark to Market is a method of measuring the fair value of account that can fluctuate over time, such as assets and liabilities **EXAMPLE:** Let\'s say you bought 100 shares of XYZ Corporation on January 1st for \$50 per share. Your total investment was \$5,000. **January 1st:** **Purchase price:** \$50/share **Total** **investment:** \$5,000 **March 1st:** XYZ stock price rises to \$60/share. **Mark-to-market value:** 100 shares \* \$60/share = \$6,000 **Unrealized gain:** \$6,000 - \$5,000 = \$1,000 **June 1st:** XYZ stock price drops to \$45/share. **Mark-to-market value:** 100 shares \* \$45/share = \$4,500 **Unrealized loss:** \$4,500 - \$5,000 = -\$500 **MTM LOSSES** MTM Losses or the Mark-to-market losses are losses generated through an accounting entry rather than the actual sale of a security or other asset. Mark-to-market losses occur when financial instruments held are valued at the current market value, which is lower than the price paid to acquire them. **MTM IN FINANCIAL SERVICES** Companies in the financial services industry may need to make adjustments to their asset accounts in the event that some borrowers default on their loans during the year. **MTM IN PERSONAL ACCOUNTING** In personal accounting, the market value is the same as the replacement cost of an asset. **MTM IN INVESTING** In securities trading, mark to market involves recording the price or value of a security, portfolio, or account to reflect the current market value rather than book value. **WHY IS MTM NEEDED?** - Real-time valuation - Risk management - Performance measurements - Transparency - Regulatory compliance **UNIT CAPITAL** - Unit capital represents the total monetary value of the units issued by a mutual fund. - When an investor purchases units in a mutual fund, they are essentially buying a proportionate share of the fund's assets - **Units Outstanding** - The total number of units that have been issued to investors. This includes both new investments and units that have been bought back and reissued. - **Net Asset Value (NAV)** - The value of one unit of the mutual fund **CALCULATION OF UNIT CAPITAL** **Unit Capital = Units Outstanding × NAV per Unit** Example Scenario: You are analyzing a mutual fund named "Growth Plus Fund." Total Units Outstanding: 2,000,000 units Net Asset Value (NAV) per Unit: \$15 Unit Capital = 2,000,000 units × \$15 UNIT CAPITAL = \$30,000,000 **ASSETS UNDER MANAGEMENT** Assets under management (AUM) is the market value of the investments managed by a person or entity on behalf of clients. **CALCULATING AUM** **AUM = (NUMBER OF SHARES OR UNIT ) x (CURRENT MARKET PRICE)** for example: AUM = 100k x 50 AUM= 5m **FUNDS RUNNING EXPENSE** Expense ratio, represent the ongoing costs associated with managing and operating a mutual fund **MANAGEMENT FEES** Paid to the fund managers or the investment advisory firm for managing the portfolio **ADMINISTRATIVE FEES** Covering the costs of day-to-day operations, such as record-keeping, customer service, and compliance. **DISTRIBUTION AND MARKETING FEES** (12B-1 FEES) These fees are used to cover the costs of marketing and selling the fund to new investors, including advertising, sales commissions, and promotional activities. **NET ASSET VALUE** **Net asset value (NAV)** is the value of an investment fund that is determined by subtracting its liabilities from its assets. The **fund\'s per-share NAV** is then obtained by dividing NAV by the number of shares outstanding. **NAV Formula** **NAV** = Assets -- Liabilities **NAV per share** = (Assets - Liabilities) / Total number of outstanding shares **EXAMPLE:** TOTAL OUTSTANDING SHARE: 5 000 000 **ASSET:** Investment Fund: 100 000 00 Cash and Cash Equivalent: 7 000 000 Account\'s Receivable: 4 000 000 Accrued Income for the Day: 75 000 **TOTAL ASSET: 111,075,000** **LIABILITIES:** Short Term Liabilities: 13 000 000 Long Term Liabilities: 2 000 000 Accrued Expenses for the Day: 10 000 **TOTAL LIABILITIES: 15,010,000** 1\. To determine per-share NAV, first calculate the fund\'s NAV: NAV = 111,075,000 - 15,010,000, or 96,065,000 2\. Next, calculate per-share NAV: Per-share NAV = 96,065,000 / 5,000,000, or 19.21 **OPEN-END FUND** An open-end fund is a diversified portfolio of pooled investor money that can issue unlimited shares. The fund sponsor sells shares directly to investors and redeems them as well. **CLOSE-END FUNDS** A closed-end fund is a type of mutual fund that issues a fixed number of shares through one initial public offering (IPO) to raise capital for its initial investments. Its shares can then be bought and sold on a stock exchange, but no new shares will be created, and no new money will flow into the fund. **OPEN-ENDED FUND VS CLOSED-ENDED FUNDS** **OPEN-ENDED FUNDS** Structure: Open-ended funds do not have a fixed number of shares. Liquidity: Investors can redeem their shares or buy more at any time, based on the current NAV. Management: Fund manager actively adjusts the portfolio to align with the fund\'s investment goals. Pricing: The price of shares is determined by the NAV, which reflects the fund's total assets minus liabilities divided by the number of shares outstanding. **CLOSED-ENDED FUNDS** Structure: Closed-ended funds have a fixed number of shares issued through an initial public offering (IPO). Liquidity: Investors buy and sell shares on the secondary market through stock exchanges. Management: Do not need to manage cash flows for redemptions or new investments. Pricing: The share price is determined by market forces and can trade at a premium or discount to the NAV. **mutual fund** **1^ST^SEM/MIDTERM** **G2: Categorization of Funds by Investment Objective** 1. **Breaking Down Fund Category** 2. **Professionally Managed Fund of Funds -** Professionally managed fund of funds is a leading example of how portfolio managers can build a portfolio of funds using different fund categories 3. **Fund Investing for Retail Investors Retail investors** 4. **Targeted Asset Fund Categories** 5. **Managed Objective Fund Categories -** A wide range of managed objective fund categories also exists. Outside of traditional stock and bond categories, these fund categories can have more specific objectives such as value, growth, and income **INVESTING HORIZON** - Time to hold investment before access - Shapes strategy, allocation, risk management **SHORT -- TERM HORIZON** - Duration: 1 year or less - Goals: Quick profits, immediate expenses - Risk: Low risk, capital preservation - Investments: Cash, short-term bonds **INTERMEDIATE -- TERM HORIZON** - Duration: 1 to 5 years - Goals: Medium-term (education, house) - Risk: Moderate risk, balanced approach - Investments: Balanced funds, bonds **LONG -- TERM HORIZON** - Duration: Years or decades - Goals: Retirement, wealth accumulation - Risk: High risk, potential for growth - Investments: Equities, real estate **INVESTING ASSET CLASS** **WHAT IS ASSET CLASS?** Asset classes are categories of investments that have similar characteristics and behave similarly in the market. Each asset class has its own set of risks, returns, and investment characteristics. **TYPES OF ASSET CLASSES** - **Cash and Cash Equivalents** - Cash and cash equivalents represent actual cash on hand and securities that are similar to cash. - **Fixed Income (Bonds)** - Loans made to governments or corporations that pay interest over time. They are generally considered lower risk than stocks and provide more stable returns. - **Equities** - Shares of ownership in a company. They offer the potential for high returns but come with higher risk due to market volatility. - **Commodities** - Physical goods such as gold, oil, or agricultural products. Investing in commodities can hedge against inflation but can be volatile. - **Alternative Asset Classes** - financial assets that do not fit into conventional categories such as stocks, bonds, and cash. **WHAT SHOULD YOU CONSIDER BEFORE INVESTING IN THESE ASSET CLASSES?** - Risk Tolerance - Investment Goals - Liquidity - Accessibility - Understanding **INTERNATIONAL FUNDS** **WHAT IS INTERNATIONAL FUNDS?** An international fund is a type of investment that allows people to invest in companies located outside of their own country. The idea is to spread your money across different countries to reduce risk and potentially earn more profit **WHAT IS GLOBAL FUNDS?** Unlike an international fund, a global fund invests in both domestic and foreign markets. It gives you exposure to a mix of investments from around the world, including your home country. **WHAT IS THE DIFFERENCE BETWEEN AN INTERNATIONAL FUND AND A GLOBAL FUND?** International funds are distinct from global funds, which invest in companies around the world and in the country where the fund\'s investors are located. **HOW CAN INTERNATIONAL FUNDS AND GLOBAL FUNDS BENEFIT** By investing in international and global funds, you spread your investments across different countries and regions. This helps reduce the risk because different markets don't always move in the same direction. **FUND OF FUNDS** A \"fund of funds\" (FoF) is an investment strategy where a fund invest in other investment funds rather than directly in securities. **TWO MAIN TYPES OF FUND OF FUNDS** 1. Mutual fund of funds: Invest in a diversified portfolio of mutual funds ac different asset classes. 2. **Hedge fund of funds**: Primarily invest in hedge funds, often with specific themes or strategies. **ADVANTAGES OF INVESTING IN FOFS** - Additional diversification - Access to premium investment opportunities - Professional management - Simplified investment process **DISADVANTAGES OF INVESTING IN FOF** - Higher expense ratio - The risk of diluted returns - Complexity and risk of overlap in holdings - Opaque nature of the investment **EXCHANGE TRADED FUNDS (ETF)** **What is ETF?** An ETF, or exchange-traded fund, is an investment security that combines some of the attributes of stocks and mutual funds. Like stocks, ETFs trade intra-day on an exchange. Like with mutual funds, many ETFs seek to track the performance of a benchmark index, such as the S&P 500. **TYPES OF ETFs** 1. **Equity ETFs** There are dozens of sub-categories within the equity ETF universe. Some of the more common equity ETF types include: - S&P 500 ETFs - Dividend ETFs - International ETFs Equity ETFs can be further categorized by objective, such as growth and value, and by market capitalization, including micro-, small-, mid-, large-, and mega-cap ETFs. 2. **Fixed-Income ETFs** - Government bond - Corporate bond - Tax-free municipal bond - International bond Emerging markets bond - High-yield bond 3. **Commodity ETFs** - **Physical Commodity ETFs:** Directly invest in physical commodities like gold, silver, or oil. - **Futures-Based Commodity ETFs:** Invest in commodity futures contracts instead of the physical commodity. - **Commodity-Linked Equity ETFs:** Invest in companies involved in commodity production, like mining or energy companies. 4. **Currency ETFs** 5. **Real Estate ETFs** **mutual fund** **1^ST^SEM/MIDTERM** **quiz \#2 answers** 1. **[Gilt Funds]** Invest in only treasury bills and government securities, which do not have or minimal credit risk. 2. **[Diversified debt funds]** invest in a mix of government and non-government debt securities such as corporate bonds, debentures and commercial paper. 3. Junk bond schemes or **[High yield bond schemes]** invest in companies that are of poor credit quality. Such schemes operate on the premise that the attractive returns offered by the investee companies makes up for the losses arising out of a few companies defaulting. 4. **[Fixed maturity]** plans are a kind of debt fund where the investment portfolio is closely aligned to the maturity of the scheme. 5. **[Liquid schemes or money market schemes]** are a variant of debt schemes that invest only in short term debt securities. They can invest in debt securities of up to **[91 days]** maturity. However, securities in the portfolio having maturity more than 60-days need to be valued at market prices 6. **Diversified equity funds** -- It is a category of funds that invest in a diverse mix of securities that cut across sectors. 7. **[Sector funds]** however invest in only a specific sector. For example, a banking sect fund will invest in only shares of banking companies. Gold sect fund will invest in only shares of gold-related companies. 8. **[Stock Market]** - The process and facilitation of investors buying and selling of stocks with one another. 9. **[Stock Exchange]** -- A numerical representation of a group of stocks that is used to track their collective performance. 10. When the investment activity is profitable, the true worth of a unit goes up; when there are losses, the true worth of a unit goes down. The true worth of a unit of the scheme is otherwise called **[Net Asset Value]** of the scheme. 11. The Expense Ratio Is not affected by **[Stock market conditions.]** 12. **As per Philippine Stocks Exchange, an Exchange Traded Fund or ETF** is an open-end investment company that trades its shares in the stock exchange. An ETF company issues its shares in blocks called **[Creation Units]** in exchange for a basket of securities comprising the index it wishes to track. 13. A **fund of funds (FoF)** is an investment vehicle that holds shares in other funds rather than in individual securities or private assets. The **disadvantage of investing** in a fund of funds is: [**High Feels** ] 14. The day on which net asset value is calculated by a fund is known as [**Valuation date**. ] 15. Debt securities bought at a discount to their face value are generally **[Zero-coupon bonds.]** **mutual fund** **1^ST^SEM/MIDTERM** **HISTORY OF PHILIPPINE MUTUAL FUNDS** **Early 1950s:** - Mutual funds introduced in the Philippines, inspired by the concept of **Bayanihan** (collective effort). - Mutual funds pooled money from shareholders to invest in diversified portfolios. - Initially registered as finance companies due to the absence of a governing law. - **Long-term investment programs:** Fixed payment schemes (e.g., Php 50/month for 20 years), with high sales charges (e.g., 8%, and even a 50% front-end load). - Criticism by columnist **Ka Doroy Valencia** of how mutual funds were sold and managed. - Three out of four mutual fund companies closed during the late 1950s stock market collapse, leaving only **Filipinas Mutual Fund**, which later transformed into a finance company. - Enactment of **R.A. 2629 (Investment Company Act)** to regulate the mutual fund industry, with stringent regulations modeled after U.S. law. **YEAR 1969:** - **Trinity Shares** became the first mutual fund company registered under R.A. 2629 and sold shares publicly in October 1969. - Within four months, Trinity Shares opened 11 branches, saw sales double monthly, and increased its value by 27%. - Influential personalities like **Ka Doroy Valencia** were convinced to invest and serve as directors. - The political instability of the time (1st Quarter Storm) and the Manila Stock Exchange\'s 30% decline hurt mutual funds, leading to the SEC banning mutual fund sales in 1973. - Several funds, including Trinity Shares, Malayan, and Pacific Fund, ceased operations. - **Trinity Shares** was later acquired by **PDCP** in 1979 and bought by **Philamlife** in 1993. - Factors contributing to the industry\'s failure included lack of regulation, political instability, the absence of alternative investments, and an undeveloped equity market. **1980s:** - **Asian Development Bank** initiated a study on mutual funds to revive the industry. - In 1989, the SEC established a task force to develop the Implementing Rules and Regulations (IRR) for the ICA. - The IRR was promulgated in October 1989, increasing paid-up capital to Php 50 million and adding new investor protection measures like a **24-month holdout period and four annual audits.** **YEAR 1991:** - Under the new IRR, the **Galleon Fund** was the first company to register, starting in February 1991. - Despite the **Asian financial crisis**, the industry remained stable due to increased professionalism and improved regulations, signaling that mutual funds were here to stay. **YEAR 2017:** - In December 2017, the IRR of the ICA was revised to align with global standards to enhance the Philippine capital market\'s competitiveness in international transactions. - The mutual fund industry continued to grow in terms of the number of funds **mutual fund** **1^ST^SEM/MIDTERM** **GROUP \#3** **INVESTORS** **an individual or entity that allocates capital with the expectation of a financial return.** **TYPES OF INVESTORS** 1. **Banks** 2. **Angel investors - are high-net-worth private individuals who fund startups at the early stages** 3. **Venture Capitalists - investors who provide capital to startups with high growth potential in exchange for equity.** 4. **Peer to peer lenders** 5. **Personal investors - any individual investing on their own.** 6. **Institutional investors - organizations that invest the money of other people.** **3 TYPES OF INVESTOR BY RISK PROFILE** 1. **Risk-averse or conservative investors -- Avoid high-risk investments and prioritize lower-risk options.** 2. **Risk-neutral or moderate investors - have a balanced risk tolerance and appetite, accepting some losses for potential gains.‍** 3. **Risk-seeking, riskloving or aggressive investors - actively pursue highrisk investments for potentially higher rewards.** **4 TYPES OF INVESTORS (3A)** - **Preserver** - **Accumulator** - **Followers** - **Independent** **FINANCIAL GOALS (3A)** - **the personal, big-picture objectives you set for how you\'ll save and spend money** - **can be short-, medium- or long-term. These goals can help you succeed in your personal and professional life and save for retirement.** **IMPORTANT CONSIDERATION IN FINANCIAL GOALS** - **Time horizon - The length of time an investor expects to hold an investment before needing to access the funds.** - **Risk tolerance - The level of risk an investor is willing and able to take on in pursuit of their financial goals.** - **Financial situation - The current financial condition of the investor, including income, expenses, debt levels, and savings.** **FINANCIAL GOALS** **Capital appreciation - is to grow the initial amount of money invested by purchasing assets that are expected to increase in value over time. Investors focusing on capital appreciation seek to build wealth by investing in securities that have the potential for significant price appreciation.** **Income generation - is to produce a steady stream of cash flow from investments. This strategy is particularly important for retirees, individuals seeking financial independence, or those looking to supplement their primary income sources.** **Preserver of capital - Preservation of capital aims to protect the principal amount invested, minimizing the risk of loss. This goal is often pursued by conservative investors who prioritize safety overgrowth, such as retirees or those nearing retirement who cannot afford to lose their investment principal** **Speculation - Speculation involves taking on higher risks in pursuit of potentially significant short-term gains. This strategy is characterized by high volatility and uncertainty, often appealing to investors with a high-risk appetite and a strong understanding of market dynamics.** **TYPES OF FINANCIAL GOAL** 1. **Short -- term goals** 2. **Medium -- term goals** 3. **Long -- term goals** **Examples of financial goals** 1. **Emergency** 2. **Retirement** 3. **Buying a house** 4. **Starting a business** 5. **Education** **RIGHTS OF AN INVESTORS** - **Right of recourse in case of disputes concerning the account** - **Right to fair securities markets where trades are executed at the best possible price** - **Right to expect that the regulatory bodies are exercising supervision over the industry** - **Right to know dividend policy, to receive dividends, and to enjoy other benefits due to stockholder** **RIGHTS OF AN INVESTORS (3A)** - **Right to equal and fair treatment** - **Right to information** - **Voting right** - **Right to full fund access** - **Rights to be aware of disputes regarding the account** - **Right to a securities market** - **Right to know full performance of regulating bodies.** - **Right to dividend.** - **Right to legal recourse (3C)** - **Right to data privacy (3C)** **DIFFERENCE BETWEEN SAVINGS AND INVESTMENT** **SAVINGS** **Definition: Setting aside money for short-term goals or emergencies.** **Purpose: To preserve capital and ensure liquidity.** **Risk: Low to minimal; funds are generally safe.** **Return: Typically lower interest rates (e.g., savings accounts).** **Accessibility: High; easy to withdraw when needed.** **Time Horizon: Short-term (months to a few years).** **PROS OF SAVINGS (3A)** - **Builds up an emergency fund** - **Funds short-term goals like Buying groceries, a new Phone, or going on a Vacation.** - **Minimal risk of loss. Savings Held at banks are protected By fdic.** **CONS OF SAVINGS (3A)** - **Much lower yields** - **May lose out to inflation** - **Opportunity costs when not invested in riskier but higher yielding assets** **TYPES OF RISK IN SAVINGS (3C)** - **Inflation risk** - **Low return** - **Liquidity constraints** - **Physogical risk** - **Opportunity cost** **INVESTMENT** **Definition: Allocating money into assets with the potential for growth over time.** **Purpose: To build wealth and achieve long-term financial goals.** **Risk: Higher; potential for loss or volatility.** **Return: Generally higher potential returns (e.g., stocks, bonds).** **Accessibility: Varies; some investments have** **restrictions on withdrawal.** **Time Horizon: Long-term (several years to** **decades).** **PROS OF INVESTING (3A)** - **Better returns over long term vs. Saving** - **May keep pace with inflation** - **Earn passive income** **CONS OF INVESTING (3A)** - **Risk of losing principal** - **Returns not guaranteed** - **Complex and can be difficult to access** **TYPES OF INVESTMENT (3C)** - **Stocks** - **Bonds** - **Mutual funds** - **ETF** **TYPES OF INVESTMENT RISK** **is the potential for an investor to experience losses or variations from expected returns in their investment portfolio.** 1. **Market risk - is the risk of an investment losing its value due to various economic events that can affect the entire market. The main types of market risk include: Equity risk, interest rate risk, currency risk.** 2. **Liquidity risk - is the** risk of being not able to sell the securities at a fair price and converting into cash. 3. **Concentration risk - is the risk of loss on the invested amount because it was invested in only one security or one type of security.** 4. **Credit risk - The risk that a bond issuer or borrower may default on their financial obligations, leading to potential losses for lenders or investors.** 5. **Reinvestment risk - The risk of earning lower returns when reinvesting principal or income due to a decline in interest rates.** 6. **Inflation risk - Inflation risk is the chance of losing buying power when your investments don \'t grow faster than rising prices, which makes your money worth less over time and lowers your ability to handle financial risks.** 7. **Horizon risk - Horizon risk is the chance that personal events will force you to sell investments early, causing you to miss out on potential gains.** 8. **Longevity risk - Longevity risk is the chance of outliving your savings, especially for retirees who no longer have a steady income to replenish their funds.** 9. **Foreign investment risk - Foreign investment risk is the chance of losing money due to issues like falling GDP, high inflation, or unrest in a foreign country where you invest.** **HOW TO MANAGE?** **Although there are risks in investment, these risks can be managed and controlled. Various ways of managing the risks include** 1. **Diversification - Diversification means spreading investments across different assets, like stocks, bonds, and real estate, to reduce risk.** 2. **Investing Consistently (Averaging) - It means putting in small amounts at regular intervals, which averages out the cost of your investment.** 3. **Investing for the Long Term** **Long-term investments usually offer higher returns than short-term ones, despite shortterm price fluctuations, as they tend to grow more over longer periods like 5, 10, or 20 years.** **mutual fund** **1^ST^SEM/MIDTERM** **GROUP \#4** **BEHAVIORAL BIAS** **refers to the cognitive and emotional factors that influence how investors make decisions about investing in an investment. These biases can lead to suboptimal investment choices and affect overall investment performance.** **TWO TYPES OF BEHAVIORAL BIASES** - **Cognitive biases** - **Emotional biases** **Cognitive biases are systematic patterns of deviation from norm or rationality in judgment, due to the way our brains process information. They often result from faulty reasoning or misinterpretation of information.** **IDENTIFYING COGNITIVE BIASES** - **Belief perseverance** - **Informational processing biases** **BELIEF PERSEVERANCE** **Conservatism Bias - Belief perseverance bias in which people maintain their prior views or forecasts by inadequately incorporating new information that arises** **Representativeness Bias - Belief perseverance bias in which people tend to classify new information based on past experiences and classifications. They believe their classifications are appropriate and place undue weight on them.** **Confirmation Bias - Belief perseverance bias in which people tend to look for and notice what confirms their beliefs, and to ignore or undervalue what contradicts their beliefs** **Illusion of Control Bias - people tend to believe that they can control or influence outcomes when, in fact, they cannot.** **Hindsight Bias - People see past events as having been predictable and reasonable to expect. People tend to remember their own predictions of the future as more accurate than they actually were because they are biased by the knowledge of what has actually happened.** **COGNITIVE BIASES (3A)** **OVERCONFIDENCE BIAS - Individuals overestimate their knowledge, abilities, or the accuracy of their predictions. In investing, overconfidence can lead to excessive trading or taking on more risk than is prudent, as investors believe they are more capable of predicting market movements than they actually are. Believing you know more than you really do** **ANCHORING BIAS Individuals rely too heavily on the first piece of information they encounter (the \"anchor\") when making decisions. In investing, this might involve fixating on a specific historical price or data point, which can skew current decision-making even if the market conditions have changed Relying too much on the first piece of information you get** **RECENCY BIAS The tendency to give undue weight to the most recent information or events, rather than considering a broader time frame. This can cause investors to overemphasize the recent performance of a mutual fund or stock, leading to decisions that may not align with long-term trends or fundamentals Letting recent events influence your judgment more than past events.** **MENTAL ACCOUNTING BIAS Tendency to categorize and treat money differently based on its source or intended use, rather than considering it as part of a larger financial picture. In Investing, an investor might treat money set aside for retirement differently from money allocated for discretionary spending, even though both are part of their overall wealth, leading to inconsistent or suboptimal investment strategies. Treating money differently based on where it comes from or what it\'s for** **INFORMATION PROCESSING BIASES** **Framing Bias - The frame that a decision maker adopts is controlled partly by the formulation of the problem and partly by the norms, habits, and personal characteristics of the decision maker (based of the way information presnted)** **Anchoring and Adjustment Bias - When required to estimate a value with unknown magnitude, people generally begin by envisioning some initial default number---an \"anchor\"---which they then adjust up or down to reflect subsequent information and analysis.** **Availability Bias - which people take a heuristic (also known as a rule of thumb or a mental shortcut) approach to estimating the probability of an outcome based on how easily the outcome comes to mind** **Self-attribute Bias - Refers to the tendency of individuals to ascribe their successes to innate aspects, such as talent or foresight, while more often blaming failures on outside influences, such as bad luck** **Recency Bias - Cognitive predisposition that causes people to more prominently recall and emphasize recent events and observations than those that occurred in the near or distant past.** **Outcome Bias - Refers to the tendency of individuals to decide to do something, such as make an investment in a mutual fund, based on the outcome of past events (such as returns of the past five years) rather than by observing the process by which the outcome came about (the investment process used by the mutual fund manager over the past five years)** **WHAT IS EMOTIONAL BIAS? (3A)** **Emotional bias refers to the influence of emotions on a person\'s judgments and decisions. Rather than making choices based purely on objective analysis or data, individuals allow their feelings, such as fear, hope, or excitement, to affect their decision-making processes. These biases can lead to irrational or suboptimal outcomes, as emotional responses can distort reasoning and judgment. In investment, emotional biases can lead to behaviors like overreacting to market trends, making impulsive trades, or failing to stick to a long-term strategy.** **EMOTIONAL BIASES** **Loss-aversion Bias - when people tend to strongly prefer avoiding losses as opposed to achieving gains** **Self-control Bias - Which people fail to act in pursuit of their long-term, overarching goals because of lack of self decipline.** **Overconfidence Bias - which people demonstrate unwarranted faith in their own intuitive reasoning, judgements, and/or cognitive abilities.** **Status quo Bias - Which people do nothing (maintain the status qou) instead of making a change.** **Endownment Bias - When people value as asset more when they hold rights to it that when they do not.** **Regret-aversion Bias - when people tend to avoid making decisions that will result in action out of fear that the decision will turn out poorly** **Affinity Bias - Refers to an individuals tendency to make irrationally uneconomical consumer choice or investment decision based oh how they believe a certain product or services will reflect their values. This idea focuses on the expressive benefits of a product rather that on what the product or services actually does for someone.(Share similar interest, backgrounds and experience)** **Herding behavior bias (3a) - Herding behavior bias refers to the tendency of individuals to follow the actions of a larger group rather than relying on their own independent judgment. In the context of investing, this bias can lead investors to buy or sell assets simply because many others are doing so, rather than based on their own analysis or research. This often results in market phenomena such as bubbles or crashes, where prices are driven up or down due to collective behavior rather than fundamental values. Herding behavior can amplify market trends and contribute to volatility** **UNDERSTANDING ASSET ALLOCATION** **Asset allocation (3a) - Asset allocation involves dividing an portfolio investment among different asset categories, such as stocks, bonds, and cash.** **TWO TYPES OF ASSET ALLOCATION STRATEGIES** - **Strategic Asset Allocation (SAA) is constructed on the basis of long term asset class forecast with targets to maintain a asset combination of asset classes.** - **Tactical Asset Allocation (TAA) is an active strategy that adjust the allocation of asset based on short- to medium - term views** **CONSIDERATIONS FOR INDIVISDUAL INVESTOR** **Return Objective The financial goal or target that an investor aims to achieve through their investment** **Liquidity The ease with which an investor can convert an investment into cash without significantly its market price** **Risk Tolerance the of uncertain or volatility an investor is willing and able to endure in pursuit of their financial goals** **Time Horizon the length of time an investor expect to hold an investment before needing to access its proceeds** **FACTORS TO CONSIDER FOR ASSET ALLOCATION (3A)** **AGE - Age of an investor plays a critical role in asset allocation as it is key to determining how long an investor can stay invested.** **INCOME - Consider both current and future income when allocating your assets.** **TIME HORIZON - the expected number of months, years, or decades you will be investing to achieve a particular financial goal.** **RISK TOLERANCE - Risk tolerance is your ability and willingness to lose some or all of your original investment in exchange for greater potential returns.** **DIFFERENT ASSET CLASSES** **Equities, also known as stocks, represent ownership in a company. Investors purchase stocks in hopes of earning profits through capital appreciation or dividend payments.** **2 MAIN TYPES OF EQUITIES (STOCKS) (3A)** 1. **Common stock: The most common, offering ownership and voting rights. Common stock entitles owners to vote at shareholder meetings and receive dividends.** 2. **Preferred stock: A hybrid security with characteristics of both debt and equity, usually paying fixed dividends and having priority over common stockholders in case of liquidation. Usually don't have voting rights but they receive dividend payments before common stockholders do, and have priority over common stockholders if the company goes bankrupt and its assets are liquidated**  **TYPES OF STOCKS (3A)** - **Growth Stocks - Stocks expected to grow at an above average rate compared to other companies. They rarely pay dividends and investors buy them in the hope of capital appreciation.** - **Income Stocks - pay dividends consistently. Investors buy them for the income they generate. Value** - **Stocks - Stocks considered undervalued in price based on fundamental analysis. Those listed will depend on the analyst and the measures they\'re using to suggest their price is lower than their actual value.** - **Blue Chip Stocks - are shares in large, well-known companies with a solid history of growth. They generally pay dividends** - **Fixed Income - Fixed income, or bonds, are debt instruments issued by governments or corporations. Investors purchase bonds in exchange for regular interest payments and the return of principal at maturity.** **TYPES OF BONDS** - **Corporate Bonds - A debt issued by a company in order to raise capital. An investor who buys a corporate bond is effectively lending money to the company in return for a series of interest payments, but these bonds may also actively trade on the secondary market.** - **Government Bonds- A debt security issued by a government to support spending and obligations. Government bonds pay bondholders periodic interest payments called coupon payments. Government bonds issued by a federal government are also known as sovereign debt.** - **Municipal Bonds - Debt issued by states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects.** - **Agency Bonds - Also known as agency debt, is the debt issued by a government-sponsored enterprise (GSE) or a federal agency. The key difference between a GSE and a federal agency is that a GSE\'s obligations are not guaranteed by the government, whereas a federal agency\'s debt is backed up by a government guarantee** - **Cash and Cash Equivalents - These investments are considered low risk and provide little to no potential for capital appreciation.** - **Real Estate - Real estate can offer a steady income stream and long-term appreciation, but it also comes with risks such as market fluctuations and maintenance costs** - **Commodities - Commodities are physical goods such as oil, gold, or wheat, that can be traded on commodity exchanges. They can be a hedge against inflation and market volatility, but they can also be subject to supply and demand fluctuations** **INVESTMENT PORTFOLIO** **An investment portfolio is a collection of financial assets like stocks, bonds, and mutual funds held by an investor. The goal is to grow wealth, manage risk, or generate income based on the investor's financial objectives, risk tolerance, and time horizon. Portfolios are often diversified across different asset classes to reduce risk. They can be tailored to specific strategies, ranging from aggressive growth to conservative income, depending on the investor's preferences** **Key Components of a Financial Portfolio** - **Assets** - **Diversification** - **Risk Tolerance** - **Investment Horizon** - **Asset Allocation** - **Rebalancing** - **Portfolio Performance** **MANAGING A PORTFOLIO** **You can think of an investment portfolio as a pie that has been divided into pieces of varying wedge-shaped sizes, each piece representing a different asset class and type of investment. Investors aim to construct a well-diversified portfolio to achieve a risk-return portfolio allocation that is appropriate for their level of risk tolerance** **INVESTMENT PORTFOLIO TYPES** **Aggressive Portfolio Prioritizes high-growth stocks with substantial risk, focusing on capital appreciation. Suitable for investors who can handle market volatility.** **The Defensive Portfolio Invests in stable, low-risk assets like utility and healthcare stocks, designed to protect against economic downturns** **The Income Portfolio - Concentrates on investments that produce steady income, such as bonds and high-dividend stocks. Ideal for retirees seeking regular payouts** **The Speculative Portfolio - focuses on high-risk investments with the potential for high rewards, such as small-cap stocks or cryptocurrencies. Investors aim for big gains but risk significant losses.** **The Hybrid Portfolio - Combines different asset classes, like stocks, bonds, and real estate, for a balanced approach offering both growth and income** **mutual fund** **1^ST^SEM/MIDTERM** **The SECURITIES AND EXCHANGE COMMISION** **WHAT IS SEC?** - Philippine Securities and Exchange Commission (SEC) Overview Established: October 26, 1936 - Purpose: Protect investors, maintain market integrity - Regulates: Companies, stock exchanges, financial markets - Key Roles: Prevent fraud, ensure transparency - Impact: Supports economic growth and stability - Commitment: Promotes investor confidence, enforces fair trading **CHAIRMAN** **Atty. Emilio Benito Aquino** is the first CPA-Lawyer appointed as Chairperson and CEO of the Securities and Exchange Commission (SEC). He assumed office last June 7, 2018. He was earlier appointed as SEC Commissioner on December 2, 2016. **FUNCTION AND RESPONSIBILITIES** The primary function of the SEC in the Philippines is to regulate and oversee the corporate and financial sectors, with a strong focus on protecting investors and ensuring the integrity of the capital markets. The responsibilities of Securities and Exchange Commission include, registering and monitoring corporations, enforcing corporate governance standards, regulating the issuance and trading of securities, supervising market activities, and protecting investors through enforcement actions and disclosure requirements. **FUNDAMENTALS OF SECURITIES AND REGULATION** **OVERVIEW** **Securities regulation** in the Philippines is primarily governed by the **Securities Regulation Code (SRC), Republic Act No. 8799**, which aims to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. **REGULATIONS AND RULES** Some of the significant regulations include: - - - **REGISTRATION OF SECURITIES** Before securities can be offered to the public, they must be registered with the SEC. This process involves: - - **DISCLOSURE REQUIRMENTS** Issuers are required to provide regular and timely disclosures to ensure transparency. This includes: - - - **MARKET CONDUCT AND ENFORCEMENT** The SEC monitors market conduct to prevent and penalize: - - - **INVESTOR PROTECTION** To safeguard investors, the SEC: - - **SECURUTIES REGULATION CODE** is a comprehensive law that governs the securities market in the Philippines. The SRC was enacted to establish a regulatory framework to ensure transparency, fairness, and investor protection in the securities market. **Enacted on July 2000** **Enacted by:** Joseph Ejercito Estrada **OBJECTIVES OF THE SECURITIES REGULATION CODE (SRC)** 1. Protecting Investors 2. Ensuring that Markets are Fair, Efficient, and Transparent 2. Reducing Systemic Risk **DISCLOSURE RULE** Companies are required to provide accurate information about themselves and their securities to prevent exploitation by unethical individuals who may have access to non-public information. **WHAT IS MATERIAL NON - PUBLIC INFORMATION** Information that has not been disclosed to the public and would either likely affect the market price of the security when disseminated to the public or would be an important consideration by a reasonable man to either buy, sell or hold certain security. **WHO HAVE ACCESS TO MNPI?** **INSIDER** - a person who has access to material nonpublic information about the company or the security that is not generally available to the public - Issuer - Directors or Officers - Government employee, director, or officer of an [exchange], [clearing agency] and/or [self-regulatory organization] - Other people who learn of such information by communication from the preceding persons **thIs Prevents:** **MANIPULATION** - It refers to the intentional and deceptive practices used to influence the price of a security for personal gain. **FRAUD** - It is an intentional act of deceit designed to reward the perpetrator or to deny the rights of a victim. **INSIDER TRADING** - It refers to the trading of a public company\'s stock or other securities by individuals with access to non-public information about the company. **Purpose of investment company act** 1. Protecting Investors 2. Promoting Transparency 3. Preventing fraud and abuse **Key points of republic act 2629** **REGISTRATION WITH SEC** Before an investment company can start operating, it must register with the Securities and Exchange Commission (SEC). **INVESTMENT RULES AND LIMITS** The act sets rules on how investment companies can manage the funds they collect. **TRANSPARENCY AND REPORTING** Investment companies must regularly disclose their financial status, including their portfolio of investments, performance, and management practices. **GOVERNANCE AND MANAGEMENT STANDARDS** The act requires investment companies to have proper governance structures, including qualified directors and managers who must act in the best interests of investors. **INVESTOR PROTECTION MEASURES** To protect investors, the law includes measures against fraud, conflicts of interest, and mismanagement. **FEES AND COMPLIANCE** Investment companies must pay registration fees and other charges to the SEC as part of their compliance requirements. **mutual fund** **1^ST^SEM/MIDTERM** **IPO AND corporate governance** **INITIAL PUBLIC OFFERING** An Initial Public Offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Companies must meet requirements by exchanges and the Securities and Exchange Commission (SEC) to hold an IPO (Fernando, 2024). **WHY DOES A COMPANY OFFER AND IPO OR GO PUBLIC** 1. **Raising Capital:** To expand business operations, develop new products, enter new markets, or pay off existing debt. 2. **Liquidity for Existing Shareholders:** By allowing them to sell their shares in the public market. 3. **Brand Recognition:** Increases credibility and can attract more customers, partners, and talented employees. 4. **Market Valuation:** Reflects the market's perception of its value, which can be used for future fundraising and acquisition opportunities. **IPO LISTING REQUIREMENTS** Screenshot 2024-10-03 193850  Screenshot 2024-10-03 193926  **GUIDELINES FOR IPO CORNERSTONE INVESTOR** **SEC ISSUES GUIDELINES FOR IPO CORNERSTONE INVESTOR** - Investor is one with whom a registrant's offers shares are preferentially placed, with a guaranteed allocation at the final offer price, provided that the final offer price within the offer price range preferred by the cornerstone investor and agreed with the issuer - The agreement shall include the allocation guaranteed to a cornerstone investor, which must be signed on or prior to the pricing event of the IPO. The cornerstone investors shall firmly commit to purchase the shares, provided that the final offer price falls within the preferred range as agreed upon. - The issuer must likewise disclose in its final prospectus certain details about its cornerstone investors, including the number of participating cornerstone investors and their respective profile descriptions; the number and type of securities proposed to be issued or offered to such investors; and other information relevant to the investment. - A cornerstone investor may also have representation in the board of the registered issuer, provided that it owns only the minimum required number of shares for election. - Information provided to such investors will be the same as what is made available to the public or those contained in the final prospectus. **IPO PROCEDURE** **PROCESS** **Step 1:** Select an investment bank **Step 2:** Due diligence and regulatory filings **Step 3:** Pricing **Step 4:** Stabilization **Step 5:**Transition to Market Competition **CORPORATE GOVERNANCE FOR MUTUAL FUND** **INTORDUCTION TO CORPORATE GOVERNANCE** Corporate governance is the system by which companies are directed and controlled. It encompasses the relationships among a company's management, board, shareholders, and other stakeholders. This system establishes the framework for setting company objectives, achieving those objectives, and monitoring performance. **KEY PRINCIPLES OF CORPORATE GOVERNANCE** - Accountability - Transparency - Fairness - Responsibility - Risk Management **REGULATORY FRAMEWORK IN THE PHILIPPINES** **Securities and Exchange Commission (SEC)** - It issues the necessary licenses for mutual funds, enforces compliance with relevant laws, and monitors the operations of these companies to ensure they adhere to governance standards. **Bangko Sentral ng Pilipinas (BSP)** - If the mutual fund is connected to a banking institution, the BSP may also have a regulatory role, particularly in ensuring the financial stability and soundness of the entity. **Philippine Stock Exchange (PSE)** - For mutual funds invested in publicly traded securities, the PSE plays a role in ensuring that the funds comply with market regulations. **RELEVANT LAWS AND REGULATIONS** **Investment Company Act (RA 2629)** - It outlines the legal framework for how mutual funds should operate. **Revised Code of Corporate Governance** - It emphasizes the roles and responsibilities of the board, management, and shareholders in ensuring the company is run effectively and ethically. **SEC Memorandum Circulars** - These circulars provide detailed guidelines and updates on specific aspects of corporate governance, aligning them with global best practices.