Chapter 6: Investment Companies & Pension Funds Flashcards
Financial intermediaries that collect funds from individual investors and invest those funds in a potentially wide range of securities or other assets
Investment Companies
IMPORTANCE OF INVESTMENT COMPANIES
1.Access to Diversified Portfolios
2.Professional Management
3.Liquidity and Flexibility
4.Economic Growth and Capital Formation
5.Financial Inclusion
6.Stimulating Market Capitals
Types of Investment Companies
- Mutual Funds
- Exchange Traded Funds
- Unit Investment Trust
a managed fund that pools money from shareholders to invest in securities
Mutual Funds
the fund’s performance depends on how its collective assets are doing
Mutual Funds
a type of pooled investment security that can be bought and sold much like an individual stock
EXCHANGE-TRADED FUNDS
_________ share prices fluctuate all day as the ______ is bought and sold
EXCHANGE-TRADED FUNDS
offers a fixed portfolio as redeemable units to investors for a specific period of time
UNIT INVESTMENT TRUSTS
it is designed to provide capital appreciation and/or dividend income
UNIT INVESTMENT TRUSTS
are passive investments
UNIT INVESTMENT TRUSTS
is a large pool of money that’s specifically used to invest contributions made towards retirement benefits.
Pension Funds
are financial arrangements established by employers or governments to provide retirement benefits to employees.
Pension Plans
TYPES OF PENSION FUNDS METHODS
- Social Security System (SSS)
- Government Service Insurance System (GSIS)
- Personal Equity and Retirement Account (PERA)
is a mandatory ________________________ in the Philippines for Filipino workers in the private sector, self-employed individuals, and some overseas Filipino workers.
The Social Security System (SSS)
is a social security program specifically designed for Filipino government employees, including national government agencies, local government units, and government-owned and controlled corporations (GOCCs).
The Government Service Insurance System (GSIS)
provide eligible employees with guaranteed income for life when they retire.
Defined-benefit plans
Employees have little control over the funds until they are received in retirement. The company takes responsibility for the investment and distribution to the retiree. That means the employer bears the risk that the returns on the investment will not cover the defined-benefit amount due to a retired employee
Defined-benefit plans
A plan where a set amount is invested for retirement, but the benefit payout is uncertain.
Defined-contribution plans
___________ are funded primarily by the employee.
Defined-contribution plans
Some retirement benefit plans combine features of defined benefit and defined contribution plans to provide employees with both a guaranteed benefit and investment flexibility.
Hybrid Plans
These plans aim to offer the advantages of both types while mitigating their respective drawbacks.
Hybrid Plans
________________ allow employers to contribute a portion of their profits to employees’ retirement accounts.
Profit-sharing plans
Contributions are typically discretionary and may be tied to the company’s financial performance.
Profit-sharing plans
The primary oversight and regulation of pension plans in the Philippines, including their governance, contributions, benefits, and investment policies, are conducted by the ___________________ respectively, for private sector and government employees.
SSS and GSIS
BENEFITS OF PENSION FUNDS
- Financial Security in Retirement
- Tax benefits
- Long-Term Investment Growth
True or False
These agencies (SSS and GSIS) have their own governing laws, regulations, and oversight mechanisms specific to their pension programs.
True
SSS and GSIS are also governed by _______________.
RA 10149 or the GOCC Governance Act of 2011
This law was passed by the 15th Congress to enable the State to “actively exercise its ownership rights in GOCCs and to promote growth by ensuring that operations are consistent with national development policies and programs”.
RA 10149 or the GOCC Governance Act of 2011
The corporate powers and functions of the SSS shall be vested in and exercised by ___________________
the Board of Trustees composed of the President and General Manager of the SSS and eight (8) other members, undersecretary
- the SSS president and seven (7) appointive members
- three (3) of whom shall represent the workers’ group.
The corporate powers and functions of the GSIS shall be vested in and exercised by the Board of Trustees composed ___________
the President and General Manager of the GSIS and eight (8) other members to be appointed by the President of the Philippines
CHALLENGES of pension Funds
- Adequacy of benefits
- Informal Sector
- Sustainability
also known as the “Act Providing That Retirement Benefits of Employees of Private Firms Shall Not Be Subject to Attachment, Levy, Execution, or Any Tax Whatsoever,”
RA NO. 4917
was enacted to safeguard the retirement benefits of private sector employees. Under this law, these benefits are protected from being seized or taxed, ensuring financial security for retirees.
RA NO. 4917
commonly known as the Retirement Law,
RA NO. 7641
grants an employee retirement benefits upon reaching the age of 60 years but not beyond 65 years, which is the compulsory retirement age, provided such employee has served at least five years and the retirement benefits are availed of only once.
RA NO. 7641
is a voluntary retirement savings program offered in the Philippines.
The Personal Equity and Retirement Account (PERA)
True or False
Investment companies always guarantee a positive return on investment.
False
True or False
Investment companies in the Philippines are primarily regulated by the Securities and Exchange Commission.
True
True or False
Investment companies can engage in high-risk speculative trading without informing their investors.
False
True or False
Investment companies play a crucial role in channeling savings into productive investments, thereby contributing to the growth of the Philippine economy.
True
True or False
An individual gains part-ownership of all the underlying assets when he or she buys shares in a mutual fund.
True
True or False
Exchange-traded Funds are passive investments.
False
When the fund’s shares increase in price, mutual fund shares can be sold in the market for a profit.
Capital Gains
True or False
Unit investment trusts have high minimum investment requirements.
False
True or False
Investment companies are regulated by a single global regulatory body.
False
True or False
Regulatory compliance for investment companies primarily focuses on maximizing profits for shareholders.
False
True or False
Investment companies are not required to disclose their fees and expenses to investors.
False
True or False
Compliance regulations for investment companies are standardized globally, with minimal variations across different jurisdictions.
False
True or False
Once an investment company achieves regulatory compliance, it is exempt from ongoing monitoring and supervision by regulatory authorities.
False
True or False
ETFs are traded on stock exchanges, similar to individual stocks, allowing investors to buy and sell shares throughout the trading day at market prices.
True
An index that serves as a benchmark for measuring the performance of the U.S. stock market, particularly the large-cap segment of the market.
S&P 500
VSMPX is the ticker symbol for Vanguard S&P 500 Index Fund; Admiral Shares.
False
This UITF uses an algorithm to invest in stocks consisting of the 25 largest and most actively traded companies in the PSEI.
RCBC R25 Blue-chip Equity Fund
True or False
Only government employees can participate in a pension program in the Philippines.
False
True or False
The SSS program offers benefits like retirement pensions and disability benefits.
True
True or False
The GSIS program provides similar benefits to SSS but with potentially higher payouts and is open to everyone.
False
True or False
PERA contributions are tax-deductible, allowing you to save more for retirement.
True
True or False
The Philippine government guarantees a fixed amount of money upon retirement through SSS or GSIS.
False
True or False
The difference between a defined-benefit plan and defined contribution plan lies primarily on who’s responsible for your retirement income: your employer or you.
True
True or False
RA 4917 applies to both private sector and government employees.
False
