Home / Investing in UITFs / What are Unit Investment Trust Funds (UITF)?

 

Last Friday, I appeared on the ABS-CBN News Channel (ANC)’s show Mornings@ANC as part of the PSE Market Education segment that discusses the basics of investments.

I was tasked to talk about Unit Investment Trust Funds or UITFs. It was a brief appearance but I hope it helped newbie investors learn more about UITF investing. To those who weren’t able to catch the show, here’s a recap of what I discussed.

What are UITFs?

UITF or Unit Investment Trust Fund is a collective investment scheme offered by banks wherein money from various investors are pooled together into one fund to achieve a specific investment objective. UITFs are very good investment vehicles for people who have no time or expertise to do actual stock or bond trading since professional investment managers are the ones managing the fund.

UITFs seem to be similar with Mutual Funds in the sense that they are both collective investment schemes. How are they different?

We have discussed these differences in a previous article. Please see this link: Differences between UITFs and Mutual Funds

Which one is better: Mutual Funds or UITF?

Stocks, Mutual Funds, Forex, Finance Philippines

For more than three now here at Pinoy Money Talk, we have been tracking the historical performance of both mutual funds and UITFs. Although a few specific funds stand out once in a while, on average, the two seem to have comparable returns. For us, then, we cannot say which one is better. The choice of fund to invest in should depend on the investor’s risk profile and investment objective.

What are the benefits of investing in UITFs?

UITF investors benefit from professional fund management and asset diversification. Professional management means an investor need not have expertise or experience since professional fund managers are the ones making investment decisions. An investor also does not have to track the market daily — which, in that sense, makes UITFs a form of passive investment. As for asset diversification, through UITFs, investors get to invest in assets that may normally not be accessible to them, for example, expensive stocks or high-yielding corporate bonds typically offered only to institutional investors.

How about the risks?

Of course like any other investments, UITFs are subject to market risks and other investment-related risks. Returns are not guaranteed and loss of capital is a possibility.

What are the various types of UITFs in the country?

There are four types of unit investment trust funds in the Philippines:

  • Equity or stock funds, which invest in the shares of publicly-listed companies.
  • Bond funds, which invest in fixed-income securities issued by the government and large corporations.
  • Balanced funds, which invest in a mixture of equities and fixed-income securities.
  • Money Market Funds, which invest in short-term securities that mature in one year or less.

What is the appropriate UITF for an investor?

Again, this should depend on his investment objective and risk tolerance. If an investor wants capital appreciation (therefore high returns), he can invest in Equity Funds but he must be willing to part with his money for several years and must be ready to absorb losses in the short run. If, on the other hand, a person is not ready to take some losses or might have a need to get his money back in 2 or 3 years, he is better off investing in Money Market or Bond funds. Balanced funds are a middle choice for people torn between Equity funds and Bond funds.

How to invest in UITFs?

Potential investors need only drop by branches of local banks. Bank staff would assist them by introducing the various investment offerings and would also ask them to fill out a Client Suitability Assessment form. Once the appropriate fund is chosen, an investor can start investing.In the Philippines, one can invest in UITFs for as low as P10,000.

How about withdrawing UITFs?

Since UITFs are open-ended investments, buying and withdrawing units is easy. Just go to the bank and request for a withdrawal and your funds will be credited to your settlement account.

Where to learn more about UITFs?

Some resources in PMT about UITFs:

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  • eric

    Ultra conservative small time investors main priority is preservation of capital. My friend lost 20k from his 100k investment in just a couple of months. This product should have not been born.It defeats the whole purpose of saving. It was nicer before when banks deposit interest is SLOWLY going up. And your principal is protected. Now the inflation comes into picture. If a person invested 500k in uitf last 2007. His 500k’s worth is lower now.

    When banks make a wrong investment they should not pass it on to us. . . . hah! maybe thats why they came up with uitf in the first place dont u think?

    • Anonymous

      Then UITFs are not for people who want to preserve capital. These are for people looking to earn passive income but of course there is risk in this type of investment, they should be ready to lose.

  • Investor not Saver

    Hi Friend,

    I think you may need to read more about UITFs so that you can get a full grasp of what UITFs are. Let me just clarify the distinction between investors and savers. Investors are individuals who take calculated risk to get higher returns while savers are ultraconservative individuals (NOT INVESTORS), who in order to preserve capital, will NOT take on risk except the risk that their depository bank will go bankrupt. Investors are also more willing to have a long-term view in investing their money. An investor in an equity UITF, for instance, should be willing to tie-up his or her money for at least 3 years to reap the rewards in investing. If you are willing to tie your money for only a “couple of months”, then time deposits or SDAs are the best products for you.

    I disagree with your opinion that UITFs “should have not been born”. UITFs are great products for investors who UNDERSTAND THE RISKS that they are taking, and are WILLING TO ACCEPT the risk for POTENTIAL RETURNS. I have gotten decent returns from my UITFs investment. As for your comment on inflation, if you have invested in UITFs in 2007 chances are your 500k is not 500k anymore. If you have invested in bonds, yields have gone down big time so you are probably winning now if you took a long-term view in investing and are still holding on to your invesment. Equities have rallied too and are giving returns which are way more than the inflation rate. UITFs are tools that can actually preserve your puchasing power against inflation but they are dangerous to people who don’t understand them.

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