Prof. Rosalinda Lacerona MGE 11A- BSA2J/3:00-4:30PM
Time Context 1998
SUMMARY: Though it is a potent tool for the development of the Philippine capital market the mutual fund industry only acquires at less than 5 percent of its market penetration of the potential demand of P70 billion to P100 billion while the industry believe that they have a good product, the market does not seem to think so.
A healthy mutual fund industry could effectively enhance the Philippine financial markets which, in turn, would lead to the improvement of the economy. The Philippine mutual fund industry remains small and practically insignificant. The pre-need plans industry held assets of 78.8 billion and had 3.5 million clients by the end of 1997.
The first mutual fund set up in the Philippines was the Filipinas Mutual Fund, which was incorporated on December 6, 1957. Over the next few years, four more funds were organized. By 1960, the industry was reported to have 95,000 shareholders and over P12 million in assets. Unfortunately, the industry was fell victim to a number of scams by some unscrupulous individuals. After the next few years, the mutual industry was perceived by the market as scam that led the demise of the industry.
Two funds tried to revive, but the political upheavals of 1970 caused the stock market to plummet and once again became dormant. The Securities and Exchange Commission (SEC) sought to revive the industry in 1989 with the promulgation of the Rules and Regulations Governing Investment Companies under R.A 2629.
I. Statement of the Objectives To develop the Philippine capital market To attract more clients to invest on mutual fund industry . To maximize the profit in all types of funds (Bond Funds, Balanced Funds, Total Return Funds, and others) To figure out a better way on penetrating the market To encourage other investment companies to issue debt instruments.
II. Central Problems The Philippine mutual fund industry suffers from the fact that there are only very few companies that issue debt instruments, most of which are short-tem (one year or less) and medium-term (two to five years commercial papers) and the number of clients are insignificantly low that led the industry to become incompetent compared to other developed countries. There are also a massive number of unscrupulous individuals that made the industry became synonymous with the word scam that led to the demise of the industry. The local citizen doesnt have enough financial education and not aware on the benefits of a mutual fund, low transaction cost, a potential source of secondary or primary income and doesnt know that the minimum amount to acquire a mutual fund is only P 5,000.00.
III. Areas of Consideration (SWOT Analysis)
Strengths:
Republic Act 2629 Low acquisition and transaction cost High Return of Investment capability Good economic climate
Weaknesses:
Incompetent condition of mutual fund industry Small number of SEC-licensed mutual fund salesman Few investors and participating investment companies The market is not aware with the industry
Opportunities:
Low Philippine savings profile caused by new investment Awareness of the market Capability on improving the products and services which may attract more clients Good economic climate Improvement on monitoring mutual funds to eliminate scams.
Threats:
Expansion of foreign mutual funds to the country Swindling by unscrupulous individuals. Losing the current investment companies Risk of having a loss instead of interest due to inflation rate
IV. Alternative courses of action
Action Advantage Disadvantage 1. Conduct more seminars about mutual funds to make the market aware n the industry Attracts more investors Costly 2. Encouraging other companies to participate in the industry More choices to the clients Hard to acquire funds due to competition 3. Train more SEC-licensed sales representative Easier to understand the procedure Costly
V. Strategy Formulation
I therefore conclude that the best solution to the problem is alternative course of action no. 1 which is the conducting more seminars about mutual funds to make the market aware n the industry, because Filipinos doesnt have enough financial education.
VI. Plan of Action
Know how to penetrate the market Conduct a mutual fund related seminars Acquire knowledge on foreign companies to apply on our local participating investment companies Maximize the benefits to attract more investors Develop the product and services.
VII . Potential Problems
What if the good economic condition goes into a bad one? What if the foreign companies penetrated the market? What if there are more swindlers that are capable on tricking investors?
VII. Contingency Plan.
Encourage clients to support our mutual fund industry Apply laws to prohibit and eliminate swindlers to gain trust from the market The government should educate people about mutual funds and other potent tools that can be consider as a source of income. Cheaper acquisition cost to invite clients.