By Chanda Shahani Here is a possible ladderized approach for entering into the mutual funds business for those

who have the trading skills, temperament, customer-oriented approach, investors and/or capital and strong sense of business ethics. However, this approach must be screened through a competent lawyer in order to finalize the actual strategy. Stage 1: Start with your friends, relatives and classmates. You can issue them securities in return for a sum of money despite the fact that the Philippine Securities regulation Code (Section 8) provides that no securities may be sold or offered for sale or distributed to the public unless such securities have been registered with the SEC. However, Section 9 goes on to list securities that are exempt from being registered with the SEC and Section 9 of the SRC and SRC Rule 9.2 both stating that one of the exempt transactions is the sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period. I did consult my lawyer about this clause two years ago (for another purpose, however), and he confirmed that as long as you stick to the 20 persons and below rule within the twelve month period, you can just have side agreements with the 20 persons. The purpose of this can range to raising funds for an entrepreneurial venture to having to offering bond-like investments (i.e., fixed interest rates). Just about anything can be put in a side agreement with the 20 persons. Obviously another 20 persons can be brought on board after another twelve month period if you want to adopt the go-slowly approach (to see the link to the SRC, please go to: http://www.chanrobles.com/republicactno8799.htm). Stage 2: Assuming expansion is in order, and more capital has been raised, it is possible to open an investment company which would be allowed by SEC to sell directly to the public using prospectuses, advertising, etcetera (please see: http://www.sec.gov.ph/ica/ICA-chapter_ii.htm). However, this does not clearly state the capitalization requirements of such an investment company, although more detailed requirements may be found here: http://www.sec.gov.ph/index.htm?other_guide However, the number of persons holding securities should be more than 50 persons to be defined as an investment company. Furthermore, investment companies are defined as: 1) Closed end funds (see: http://en.wikipedia.org/wiki/Closed-end_fund) and 2) Mutual funds which would essentially be funds that are redeemable and sold to the public. It is with mutual funds that the requirements are more stringent with a required capitalization of P50 million and with the investment manager having an unimpaired net worth of P10 million (http://www.upd.edu.ph/~cba/docs/hsv_ctf_study.pdf). Recommended strategy: First start with 20 friends or relatives and issue them securities. After another year, get another 20 friends or relatives. Depending on your fund's performance, it may be possible to graduate to a closed end fund and from there, depending on financial performance, it could be strengthened to a mutual fund (Total timetable: 3 to five years).