MUTUAL FUNDS INVESTING IN MUTUAL FUNDS

What is a mutual fund?

M MM MUTUAL FUND is an investment company that pools the funds of individuals and institutional investors to form a massive asset base which is then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments.

MUTUAL FUNDS OPERATION

HOW MUTUAL FUNDS WORK? POOL THEIR MONEY INVEST IN GENERATES PASS BACK TO

Structure of Mutual Funds Mutual Fund Shareholder Fund Board of Directors Investment Adviser Fund Administrator Principal Distributor Custodian Bank External Auditor MUTUAL FUND

Benefits of Mutual Funds Affordability – very low minimum initial investment requirements, (P5,000-P50,000) making them accessible to investors of moderate means. 

Benefits of Mutual Funds Safety – (i) all the assets of the fund are held by a custodian bank for safekeeping; (ii) the investment of the funds and the activities of affiliated persons are subject to regulation by the SEC; (iii) diversification reduces investment risks.

Benefits of Mutual Funds Professional Management –since funds are pooled, investors can afford to hire the services of full- time professional fund managers whose job is to manage the fund’s portfolio and maximize investment returns.

Benefits of Mutual Funds Diversification – provide investors instant diversification because they are invested in a wide array of investment products and issues. This helps reduce the risks associated with investing in individual securities.

Benefits of Mutual Funds Potentially higher returns – lower transaction costs plus the expertise of fund managers, contributes to potentially higher returns for investors.

Benefits of Mutual Funds Convenience – investors are provided regular reports including financial statements and schedule of investments. The NAVS is also published daily in newspapers of general circulation so investors can easily track their investments.

Benefits of Mutual Funds Liquidity – Mutual funds stand ready to redeem or buy back the shares from investors at the prevailing NAVS, which is computed daily.

MUTUAL FUNDS IN THE PHILIPPINES

TYPES OF MUTUAL FUNDS EQUITY FUNDS invest primarily in equity securities (common, preferred and warrants)

TYPES OF MF BOND FUNDS invest in fixed income instruments like government and corporate bonds.

TYPES OF MF BALANCED FUNDS invest in both equity and debt securities, typically at a ratio. 50%

TYPES OF MF MONEY MARKET FUNDS invest exclusively in short-term (> 365 days) debt instruments such as Tbills and commercial paper.

TYPES OF MF INDEX FUNDS invest in securities to mirror a market index such as the Philippine Stock Exchange Index (PSEi)

TYPES OF MF INDICES

PURCHASING MUTUAL FUND SHARES

Mutual Funds are generally sold by duly licensed salesmen of the fund’s principal distributor.

MF FEES Sales load (2%-3%) – charged upon placement of the investment and dependent on the amount of investment. Management fee – charged on an annual basis and the NAVPS is already net of management fee Exit fee – charged when investor decides to redeem before a pre-determined time

5-year MF yields (as of Dec. 31, 2012) Stock Funds (Peso denominated): – Highest Yield : 18.85% p.a. – Lowest Yield : 8.53% p.a. Balanced Funds (Peso denominated): – Highest Yield : 24.02% p.a. – Lowest Yield : 8.30% p.a.

5-year MF yields (as of Dec. 31, 2012) Bond Funds (Peso denominated): – Highest Yield : 9.05% p.a. – Lowest Yield : 2.82% p.a. Bond Funds (US$ denominated): – Highest Yield : 7.75% p.a. – Lowest Yield : 2.48% p.a.

1.The licensed salesman gives the prospective investor a prospectus of the fund, regardless of whether the investors ask for it or not. BASIC STEPS IN PURCHASING MUTUAL FUND SHARES

2.The salesman explains the features of the fund, particularly its investment objectives and policies, sales charges and redemption fees (if any), fund operating expenses, the risks of investing in the fund, etc. BASIC STEPS IN PURCHASING MUTUAL FUND SHARES

3.To open an account with the fund, an investor accomplishes an investment Application Form and signature cards. BASIC STEPS IN PURCHASING MUTUAL FUND SHARES 4.The investor issues a check payable to the fund and receives a provisional receipt from the salesman.

5. The salesman submits the payment and the documents to the fund’s principal distributor, who in turn deposits the money with the fund’s custodian bank. BASIC STEPS IN PURCHASING MUTUAL FUND SHARES

6.If the fund’s administrator receives the investment application before the cut-off time of 12:00 noon, the applicable Offering Price is based on the Net Asset Value Per Share (NAVS) computed at the close of the same business day. Applications received after the cut-off time is deemed to have been received the next business day. 7.The investor receives a Confirmation Receipt or Official Receipt from the custodian bank or the principal distributor when his check clears. BASIC STEPS IN PURCHASING MUTUAL FUND SHARES

8.The investor receives his Stock Certificate (if he requested for one) from the fund’s transfer agent. BASIC STEPS IN PURCHASING MUTUAL FUND SHARES

REDEMPTION OF MUTUAL FUNDS SHARES

The procedure for selling the shares back to the fund is as follows: 1.The investor accomplishes a Redemption Request Form or prepares a redemption letter and submits it to the management company.

REDEEMING MUTUAL FUNDS SHARES 2.If the investor requested for and received a stock certificate, he must endorse the stock certificate and surrender it together with the request for redemption.

REDEEMING MUTUAL FUNDS SHARES 3.If the request for redemption is received before 12:00 noon, the applicable redemption price is the NAVS computed at the close of the same business day. For requests received after the cut-off time, the request is deemed to have been received the next business day.

REDEEMING MUTUAL FUNDS SHARES 4. The law provides that redemptions must be effected within seven (7) banking days from the date of the request. Most funds in the Philippines, however, are able to effect redemptions within a day or two.

NET ASSET VALUE per SHARE

NAVS At the heart of mutual funds operation is the daily computation of the NAVS NAVS is the basis for computing the Offering Price or the price at which mutual funds shares are sold. is the price at which shares are redeemed or bought back from investors. The difference in the NAVS from one period to another represents the rate of return to investors.

HOW IS NAVS COMPUTED? The NAVs is computed by adding the fund’s assets less liabilities as follows: Assets: Principal + Accrued interest + Market gain (loss) - Liabilities: - Taxes - Management Fees - Other expenses = Net Asset Value NAVs = Net Asset Value No. of Outstanding Shares

WHAT ARE THE RISKS OF INVESTING IN MF? An investor should be prepared to absorb the following potential risks: Inflation risk Credit Risk Interest Rate Risk Market risk Pre-payment Risk

Thank you! Atty. Josephine C. Lafiguera-Ilas Division Head Equities & Bonds Corporation Finance Department Securities and Exchange Commission