SEC Establishes Rules for Umbrella Funds

The Securities and Exchange Commission (SEC) has issued Memorandum Circular No. 14, Series of 2026, providing the Rules on Unitized Umbrella Funds (Rules). This is in the spirit of supporting the development of the Philippine capital markets while promoting investor protection through full and fair disclosure of investments. 

Under the Rules, the words “Unitized Umbrella Fund” must be included in the name of the unit-issuing open-end investment company adopting an Umbrella Fund structure. Its Articles of Incorporation (AOI) must: (1) provide for the segregation of assets and liabilities; (2) provide that the Umbrella Fund shall consist of at least two (2) Sub-funds; (3) ensure that the obligations of each Sub-fund are satisfied solely from the assets attributable to that Sub-fund; (4) limit the rights attached to units issued by a Sub-fund to that Sub-fund; (5) describe the rights applicable to all Sub-funds; and (6) comply with the minimum subscribed and paid-up capital of PHP 100 million. 

If the termination of a Sub-fund results in the fund having only one remaining Sub-fund, the company is given one (1) year to restore compliance, unless the SEC grants an extension for highly meritorious reasons. If it fails to restore the required minimum of at least two Sub-funds within the prescribed period, the Umbrella Fund must amend its AOI, By-laws, and Registration Statement (RS) to convert into a stand-alone or ordinary investment company.

A fundamental feature of the Rules is the segregation of assets and liabilities among Sub-funds. Although a Sub-fund does not possess a legal personality separate and distinct from the Umbrella Fund, its assets and liabilities remain segregated from those of the Umbrella Fund and the other Sub-funds. The Circular further prohibits an Umbrella Fund from issuing units of participation in its own name without identifying the relevant Sub-fund. Investors are likewise permitted to undertake switching, allowing them to voluntarily transfer their investments from one Sub-fund to another within the same Umbrella Fund, subject to the applicable terms and conditions.

The Circular also regulates Cross Sub-fund Investments, allowing one Sub-fund to invest in another Sub-fund within the same Umbrella Fund, subject to specific safeguards. Reciprocal investments between Sub-funds are prohibited, and management fees may be imposed only once, either at the investing or investee Sub-fund level, to prevent fee duplication. In addition, subscription fees, redemption fees, and similar initial charges must be waived for these internal transactions. The Board of Directors may establish new Sub-funds when authorized by the corporation’s By-laws and subject to the total number of units approved by the SEC. Units may likewise be reallocated among Sub-funds, subject to the approval and notice requirements under the Rules and only to the extent of the Umbrella Fund’s unissued and registered securities.

To comply with the Circular, Unitized Umbrella Funds must prepare three principal disclosure documents: (1) a Main Prospectus for the Umbrella Fund, containing information applicable to the Umbrella Fund and all its Sub-funds; (2) a Sub-fund Supplement describing the specific investment objectives and strategies of each Sub-fund; and (3) a Subscription Agreement. The Subscription Agreement must expressly acknowledge the segregated nature of the Sub-funds and confirm that the investor’s rights and interests are limited to the specific Sub-fund or Sub-funds in which the investment is made.