Mutual funds in uphill fight to draw scam-weary PH investors

Filipinos remain skeptical about putting their hard earned money in mutual funds, due in part to insufficient knowledge about these investment alternatives but also due to negative perception brought about by the collapse of pre-need firms over the last two decades.

To counter this, the Philippine Investment Funds Association — an organization of mutual fund companies managing almost P300 billion in assets — urged industry stakeholders to redouble their efforts to make these investment schemes more attractive to the still relatively unsophisticated local market.

“One of the biggest obstacles is the lack of knowledge and understanding on this kind of investment,” PIFA chair Ignacio Gimenez told the Inquirer in an interview. “Also, the idea of long term investing is very unpopular because of the fear brought about by the bankruptcy of leading pre-need companies in the 1990s and early 2000s.”

He pointed out that “less than one percent” of Filipinos have investments in any type of securities whether stocks or bonds, while only 14 percent of local household members have bank accounts. Thirty percent of those who have bank accounts have their money in arrangements that earn “negligible” or no returns at all, he said.

In contrast, as many as 50 percent of Americans have direct or indirect investments in the stock market, 33 percent of Singaporeans, a quarter of all Japanese and Australians, 18 percent of Malaysians and 17 percent of Hong Kong citizens.

“There is a very very small percentage of Filipino investors that are extremely sophisticated and knowledgeable in the investment world,” Gimenez said. “But as a nation, I would say Filipino’s are not yet investment conscious, lack sophistication or market savvy.”

To address this situation, the PIFA chair urged the government to help cultivate financial literacy among Filipinos through formal subjects in the educational curriculum.

Fund manager Augusto Cosio Jr., who also heads PIFA’s education committee, said the problem is even deeper because even those local investors who invest in mutual funds have “trading mindsets” instead of adopting a long term horizon.

“The average holding period we perceive is around 18 months, where statistically, equity investments have better risk to reward results in periods of 5 years or longer,” he said. “There is lack of understanding of the kind of temperament one has to acquire to be a good investor.”

To address this situation, PIFA is asking the government to abolish the tax on buying or selling of stocks below P25,000, and for Congress to pass the Collective Investment Schemes Law which made it only until third reading in 2010, but was refiled last year. /je