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?
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: