You’ve (finally managed) got to the point where you can set aside a sum of money regularly. Naturally, your next question will be, “How am I going to invest this?”. Here, we will introduce you to some of the main investment options available in the Philippines.
A Few Investment Basics
Even before you get started, consider these investment basics:
▪ What are your investment objectives? Why are you investing?
▪ What is your time frame? For how long do you plan to hold the investment?
▪ What is your risk tolerance?
Answering the above questions will give you a better idea of what investments to choose and how you need to structure your Investments portfolio.
Investment Options in Philippines
Retail Treasury Bonds (RTB) – RTBs represent a debt class of instruments. RTBs form part of the National Government’s program to make government securities available to retail and individual investors. RTBs are made available by the Bureau of Treasury.
RTBs represent a class of instruments that are zero-risk, accessible (available for as low as P5,000 during a Public Offering), fairly high yielding, liquid (can be easily bought and sold in the secondary market through Selling Agents) and provide frequent cash flows.
You can purchase RTBs through a Selling Agent by submitting the necessary requirements provided you have or open a peso account where interest and principal payments will be made. At the time of purchase, the Selling Agent will issue a Receipt and a Confirmation Advice a few days after the Issue Date.
No certificate will be issued as ownership of the RTBs will be registered in electronic form with the RoSS (Registry of Scripless Securities).
Equities / Stocks – Stocks are shares of ownership in a company, one that is publicly listed on the Philippine Stock Exchange (PSE). When you buy stocks of a publicly listed company, you become part owner of that company. As a part owner, you participate in the company’s growth and future profits. Conversely, you may also lose if the company suffers a loss or performs below market expectations.
Historical data has shown that investing in stocks over the long-term provides returns that are superior to most other asset classes.
To start investing in stocks, you need to open a trading account with a licensed stockbroker accredited by the PSE. You can buy and sell stocks either by a phone call to your stockbroker or through an online trading interface provided by your stockbroker.
And, when you buy or sell stocks, the PSE through its central depository, the Philippine Depository Trust Corp. (PDTC) uses the computerized book-entry system (BES) to transfer ownership of securities from one account to another, thus eliminating the need for physical exchange of scrip between buyer and seller.
Unit Investment Trust Funds – UITFs are open-ended pooled funds that are invested collectively in a portfolio of stocks, bonds, securities etc. All the collected funds will go towards forming a Trust Fund. You will get units of investment in the fund in proportion to your investment. Unlike with mutual funds, you do not become a shareholder of the investment company. UITFs being banking products are regulated by the Bangko Sentral ng Pilipinas (BSP).
Mutual Funds – Mutual funds are also pooled funds that are invested in accordance with pre-set investment objectives. In the Philippines, mutual funds are open-ended investment companies and you buy shares of the investment company; this makes you a shareholder and gives you shareholder’s right including voting power and opportunity to receive dividends. They are governed by Republic Act No. 2629 (RA 2629), also known as the “Investment Company Act” and are regulated by the Securities and Exchange Commission (SEC).
If you want to invest in stocks or bonds but don’t have the know-how or the time, you may choose to invest in mutual funds or UITFs. They are both collective investment schemes wherein funds from various investors are pooled together to achieve a specific investment objective. The funds are then entrusted to a professional investment manager who manages a diversified portfolio that may consist of stocks, bonds, and other investment assets.
Personal Equity and Retirement Account – PERA was established via RA 9505 (PERA Act of 2008) to promote capital market development and savings mobilization in the Philippines. It is a voluntary and personal account, established by any person with the capacity to contract and possesses a Tax Identification Number (TIN).
You may use PERA to slowly build up additional funds which you may use upon retirement, even if you are employed and are entitled to receive retirement benefits from your employer. Funds remaining inside your PERA will also be automatically paid out to your beneficiaries tax-free, in case of death, and thus will prove to be beneficial as an estate planning tool as well. You are also entitled to a number of other tax benefits. It is expected that PERA will become operational in 2015/16.
Gold, jewellery and land represent a few other investment classes that you might consider investing in.
Building and Managing your Portfolio
A portfolio represents the collection of your investments. Your portfolio should have a mix of different types of asset classes. The proportion of each of these assets will vary in accordance with your objectives, time frame and risk tolerance. It is important to remember that even after creation of your investment portfolio, you must monitor your investments and keep rebalancing your portfolio. If necessary, take competent professional advice.