A mutual fund is a company that pools money from many investors and invests it in stocks, bonds or both. You own shares in the fund, priced at the net asset value per share (NAVPS). The value can go down as well as up. Mutual funds are regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act (RA 2629).
How a mutual fund works
- An investment company. The law defines an investment company as one engaged mainly “in the business of investing, reinvesting, or trading in securities” (RA 2629, Sec. 4(a)). A mutual fund is usually an open-end company: it keeps issuing new shares and buys them back when investors redeem (Sec. 5(a)(1)).
- A fund manager invests the money according to the fund’s stated objective, and a distributor sells the shares.
- NAVPS. The fund’s net asset value is worked out at the close of each trading day, and the NAVPS is that value per share (2018 Investment Company Act rules, Rule 1). You buy and redeem at the NAVPS for the day of your order if you place it before the fund’s daily cut-off time, which each fund sets.
- Putting in money regularly. One approach is to buy a fixed peso amount every month, which buys more shares when the price is low and fewer when it is high.
Fund types
From lower to higher risk:
| Type | What it mostly holds | How much the value moves |
|---|---|---|
| Money market | Short-term deposits and debt | Least |
| Bond | Government and corporate bonds | Moves with interest rates |
| Balanced | A mix of bonds and shares | In between |
| Equity | Shares listed on the stock exchange | Most |
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Spreading money across many holdings lowers the effect of any one of them going wrong, but it does not remove market risk.
Fees
Each fund’s prospectus lists its fees. The usual kinds:
- Sales load: a charge when you buy, taken from the amount you invest.
- Management fee: a yearly charge for running the fund, taken from the fund’s assets, so it is already reflected in the NAVPS.
- Exit or redemption fee: a charge if you sell within a set period after buying.
Compare funds on what you pay in total over the years you expect to hold them. A small yearly difference adds up.
UITF vs mutual fund
| UITF | Mutual fund | |
|---|---|---|
| What you own | Units in a pooled trust fund | Shares in an investment company |
| Run by | A bank’s or trust company’s trust department | An investment company, through a fund manager |
| Regulated by | BSP | SEC (Investment Company Act, RA 2629) |
| How priced | Net asset value per unit (NAVPU), computed daily | Net asset value per share (NAVPS), computed at the close of each day |
| Who sells it | The bank or trust company | Certified Investment Solicitors licensed by the SEC, through the fund’s distributors |
| PDIC deposit insurance | No | No |
| Losses | Borne by the investor | Borne by the investor |
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Neither is a deposit. PDIC deposit insurance covers deposit products only; it does not cover investment products such as bonds, securities and trust accounts (PDIC FAQs, Q10). See the UITF guide.
Who may sell mutual funds
Only people with SEC authority may solicit or sell mutual fund shares: “No person shall act as an agent, sub-agent, or investment solicitor” for an investment company without a certificate of authority from the SEC (RA 2629, Sec. 40). The SEC’s rules call them Certified Investment Solicitors, licensed by the SEC and appointed by the fund or its distributor (2018 Investment Company Act rules, Rule 1).
Before you invest:
- Check the fund is on the SEC’s list of registered investment companies (the list posted as of 30 September 2026). The SEC states that the list is not an endorsement.
- Check the company selling it with Check with SEC, which shows whether a company is registered and holds a secondary licence for investment-taking.
- Ask the person selling it for their SEC certification as an investment solicitor and the fund they are appointed by.
For all the ways to save and invest, see the investing guide.
This page explains how mutual funds work. It does not recommend any fund, and past returns do not predict future ones.
Questions people ask
What is a mutual fund in simple terms?
It is a company whose business is investing the money of many people together. You buy its shares, the fund manager invests the pooled money in stocks, bonds or both, and the value of your shares rises or falls with those investments.
What are the benefits of mutual funds?
You can spread a small amount across many investments, a professional manages them, and in an open-end fund you can usually sell your shares back on any business day, at that day's price if you order before the fund's cut-off time. Against this, there are fees, the value can fall, and nothing is insured or promised.
Talk it through
Talk through where funds fit in your planSources
- RA 2629, Investment Company Act, Secs. 4, 5 and 40 (lawphil.net) (checked 26 October 2026)
- SEC, 2018 Implementing Rules and Regulations of the Investment Company Act, Rule 1 (checked 26 October 2026)
- SEC, list of registered investment companies (as of 30 September 2026) (checked 26 October 2026)
- SEC, Check with SEC (checked 26 October 2026)
- BSP 2025 Manual of Regulations for Banks, Sec. 414 (UITFs) (checked 27 October 2026)
- PDIC, FAQs, Q10 (what deposit insurance covers) (checked 27 October 2026)