Republic of the Philippines

HOUSE OF REPRESENTATIVES

Quezon City

TWELFTH CONGRESS

First Regular Session

House Bill No. _____

Introduced by Representative Joey Sarte Salceda

EXPLANATORY NOTE

The mutual funds industry contributes to the development of the capital market by pooling money from a large group of investors who have similar objectives.  Mutual funds allow small investors to participate in the capital market, as these call for low initial investment requirement.  To strengthen the role of investment companies in the capital formation process, government needs to provide a favorable framework in which these players can operate to facilitate the flow of investment capital and broaden the participation in securities ownership by Filipinos.

The mutual fund industry was initially introduced in 1957 and attracted both legitimate as well as fly-by-night transactions.  One of the reasons for the weak performance of the industry is the negative perception it gained through the years.  The scandals and high front-end loads during the initial years contributed to investors disappointment, as well as overly strict government reaction.  This was the background that prompted the enactment of the Investment Company Act or Republic Act No. 2629.

The Philippine mutual fund industry continues to lag behind its faster growing Asian neighbors.  The succeeding charts show that the Philippine mutual fund industry is least developed in the region.

* June 30, 2000

* June 30, 2000

This bill, therefore, seeks to revise RA 2629 to provide the legal framework and environment for capital market development, through mutual funds. 

The salient features of the bill include the following:

1. Better investor protection

–    Increased capitalization requirements to better protect investors and encourage growth at the same time.

–    Imposition of a one-year holding period on seed capital

–    Expanded ineligibilities of associated persons

–    Requires registration of investment advisers, principal distributors and mutual fund dealers 

–    Requires prior filing of advertising materials

–    Limit on fees and expenses of investment companies

–    Provides for the creation of an Investors Protection Fund

2. Liberalizes operations of investment  companies

–    Removes citizenship requirements for board of directors

–    Allows investment companies greater flexibility in changing investment policies

–    Promotes growth by exempting investment companies from the requirement of the Corporation Code, re: minimum 25% subscription of any increase in authorize capital stock. 

3.  Harmonizes provisions with those of the Securities Regulation Code

Other objectives that will be served by this bill  are:

1. Employment generation, as more mutual funds mean more jobs for salesmen, portfolio managers, accountants, clerks, support personnel, etc.

2. Mutual funds are proven mechanisms for converting savers to long term investors

3. Revenue generation for government, as more mutual funds translate to more transactions serving as tax base.