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Case # 5

The Philippine Mutual


Funds Industry





Padecio, Alvin Francis

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.

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