- The Ipon Challenge
- Posts
- 🔍 Index Funds in the Philippines: What You’re Really Buying
🔍 Index Funds in the Philippines: What You’re Really Buying
A clear guide to index funds in the Philippines—what they track, how they work, and what they can and can’t do for your money.
Marianne Lim
February 02, 2026
Index funds get recommended a lot, often as the sensible, long-term option for people who don’t want to spend their lives watching markets.
Index funds are generally reasonable tools. But like any financial instrument, they only work well when you’re clear about what they’re meant to do, and just as importantly, what they’re not meant to do.
In this week’s issue, let’s explore Index Funds in the Philippines.
In today’s edition, we’ll go over:
What an Index Fund is
Index funds in the Philippines
PSEi index funds versus global index exposure
Why index fund does not automatically mean low risk
Fees and tracking
Is it right for you?
TLDR;
The Bottom Line
Index funds give you exposure to a specific market. It is not an automatic diversification. Understanding what index a fund tracks helps you decide if it fits your goals and risk tolerance.
The content
What is an Index Fund?
At its simplest, an index fund is a fund that tries to mirror the performance of a specific index.
Source: Napkin Finance
An index is just a defined list of companies, selected according to certain rules. The fund doesn’t try to pick winners, time the market, or make judgment calls. It simply holds the same companies, in roughly the same proportions, and moves as the index moves.
When you invest in an index fund, you’re not buying “the stock market” in a broad, abstract sense. You’re buying exposure to a very specific basket of companies, based on how that index is constructed. Understanding that distinction makes a big difference in how you think about risk, expectations, and long-term outcomes.
Index funds in the Philippine context
In the Philippines, the most common index funds track the PSEi, which represents the 30 largest publicly listed companies in the country.
Examples you might recognize include:
FMETF (First Metro Philippine Equity Exchange-Traded Fund) (not exactly an index fund but still mirror PSEi)
When you invest in a PSEi index fund, you’re essentially buying exposure to large Philippine corporations (banks, property developers, utilities, and major conglomerates). These companies tend to dominate the local economy and market movements.
This kind of exposure can make sense if your income, expenses, and future plans are largely tied to the Philippine economy. At the same time, it’s important to recognize that this is still a concentrated bet on one country, one currency, and a relatively small group of companies.
Why invest in an index fund instead of “directly investing in the PSEi”?
You actually can’t invest directly in the PSEi.
The PSEi is just an index (a list and a calculation that tracks how the top 30 Philippine companies are performing). It’s not something you can buy on its own. An index fund is the vehicle that lets you participate in that index.
PSEi index funds versus global index exposure
People hear “index fund” and assume it means broad diversification. What it actually means is diversification within whatever index you’re tracking.
A PSEi index fund spreads your money across Philippine blue-chip stocks, while a global index fund spreads it across countries, currencies, and industries. They move very differently, even though both are called index funds.
More content for you
Why index does not automatically mean low risk
Index funds reduce single-company risk. They do not eliminate market risk.
If the Philippine stock market goes through a prolonged downturn, a PSEi index fund will feel that fully. If the economy slows, or investor sentiment turns negative, your index fund will reflect that.
This doesn’t mean index funds are unsafe. It just means they’re not designed to protect you from volatility. They’re designed to give you market exposure in a simple, low-maintenance way, over long periods of time.
A quick note on fees and tracking
Two quiet details matter with index funds: fees and tracking accuracy.
Since index funds aim to match an index rather than outperform it, fees directly reduce returns over time.
Lower fees don’t guarantee better performance, but they give the fund less drag.
Tracking accuracy refers to how closely the fund follows the index it’s meant to mirror.
You don’t need to obsess over these numbers at this stage. It’s enough to know they exist, and that not all index funds tracking the same index behave identically.
Is investing in an index fund for you?
If you want long-term growth and you’re comfortable with market swings, an index fund can be a reasonable place to start. If you need stability or access in the near term, it’s not right for you.