ICAP pushes immediate passage of Revised Investment Company Act

The Investment Companies Association of the Philippines (ICAP) is pushing for the immediate passage of the Revised Investment Company Act (RICA) to spur the growth of the mutual fund industry which continues to lag among its Asian neighbors.

A mutual fund is an investment company that pools money from shareholders and invests in a diversified portfolio of securities.

In a letter to Sen. Edgardo Angara, ICAP president Efren Cruz sought the Senate’s support in getting the RICA passed as he noted the critical role of mutual funds in the development of the capital market.

Cruz said the RICA, which is backed by the Securities and Exchange Commission (SEC) and the Capital Market Development Council, helps to level the playing field between mutual funds and other collective investment schemes by allowing foreigners to sit in the boards of mutual funds and ensuring a simplified and unified SEC registration process.

The RICA also allows mutual funds to continue offering their shares beyond their original authorized capital without the need to comply with the rule for applications for capital increase.

Cruz proposed the inclusion of mutual funds as one of the acceptable investment vehicles under the Private Equity Retirement Account or PERA bill, the reduction in tax on income from abroad to 20 percent from 35 percent, and the reduction of fund capitalization requirements.

Cruz also proposed that mutual funds be required to incorporate only once and then allow them to establish as many mutual fund products as they wish with each mutual fund product being denominated in units and not shares of stock.

Other proposals include the following:

• exemption from reporting the top shareholders of each fund;

• promotion of real estate investment trusts;

• expressly allowing banks to sell mutual funds;

• inclusion of mutual funds in the five years plus one day tax exemption available to bank products under the 1998 Comprehensive Tax Reform Package; and

• the application of the documentary stamp tax based on the authorized shares of mutual funds and not on shares sold so as to avoid double DST charging.

With these proposals in place, Cruz is confident that the country’s mutual fund industry will also accelerate in growth like that of Indonesia, which took only two years to grow by 10 times to over $8 billion in net assets after the passage of its new mutual fund law.

The country’s mutual fund industry has only $792 million in net assets, well below its counterparts in Asia such as Thailand ($11.82 billion), Malaysia ($18.44 billion), China ($20.52 billion), and Taiwan ($76.2 billion).

Cruz said mutual funds also do their share in nation building by contribution to the national coffers. In 2004 alone, mutual funds either paid or provided taxes and government fees amounting to over P300 million, he said.