Similar to the concept of the Filipino tradition of Bayanihan which promotes efficiency in getting tasks done through a collective effort, a mutual fund is an investment company that pools money from shareholders and invests in a diversified portfolio of securities.
In the Philippine market, the concept of mutual funds is not entirely new as history can be traced way back in the early 1950’s. The birth of Philippine mutual funds was brought about by the growing popularity of off-shore funds worldwide. In the absence of a governing law, the companies were registered as finance companies. Some capitalized on long-term investment programs which made their investors commit to a fixed payment scheme (Php 50 per month for a period of 20 years). The initial amount invested for the first year served as the commission, thus, forcing investors to make successive payments thereafter before they would be able to break-even, much more so, realize a profit. Some of these companies charged exorbitant sales charges of 8%. A fund even charged a front-end load of 50%.
Simultaneous with the collapse of the stock market in the late 1950s, Ka Doroy Valencia (very popular and influential columnist at that time) openly criticized the process by which mutual funds were being sold and managed. Three of the four companies which were operating at that time eventually closed shop. Only the Filipinas Mutual Fund remained. It was later transformed into a finance company and much later, into a development company.
As a response to the fiasco of the first mutual funds, the government enacted R.A. 2629, otherwise known as the Investment Company Act. Patterned after the U.S. Law but legislated as a reaction to the recent debacle, the ICA contained stringent measures which hampered the development of the industry in general.