Collective Investment Schemes and Funds
Collective Investment Schemes and Funds tests pooled investment vehicles: mutual funds, unit investment trust funds (UITFs), ETFs, and closed-end funds. The exam asks about NAV, fees, subscription and redemption, diversification, and the regulatory split between SEC-registered funds and BSP-supervised trust products.
Core rules
- A CIS pools client money and issues units or shares; investors own the pool, not the underlying assets directly.
- NAV per unit/share = (fund assets − liabilities) ÷ units outstanding. Open-end funds deal at forward NAV; ETF market prices can deviate from NAV.
- Fees matter: sales loads, management fees, custodian fees, and redemption fees reduce net return.
- Diversification reduces unsystematic risk but not market risk.
- Mutual funds are SEC-regulated investment companies; UITFs are trust products under BSP rules. Do not describe them as identical.
- ETFs trade intraday and need a market; closed-end funds may trade at premiums or discounts to NAV.
Worked example
A fund has PHP 105 million in assets, PHP 5 million in liabilities, and 10 million units. NAV/unit = (105 − 5) ÷ 10 = PHP 10.00. A client invests PHP 100,000 with a 2% front-end load. Load = PHP 2,000; net investment = PHP 98,000; units bought = 98,000 ÷ 10 = 9,800. If NAV later rises to 10.50, the position is worth 9,800 × 10.50 = PHP 102,900 before exit fees.
Traps
Do not use backward pricing for open-end funds. Do not compare an ETF price with NAV without noting premium/discount. Do not ignore loads when showing returns. Do not call a UITF an SEC-registered mutual fund. Do not assume NAV guarantees liquidity.