Introduction to UITFs

UITF stands for Unit Investment Trust Fund. The product is fairly simple on paper: the funds of several people are combined by an administrator and collectively invested into particular assets. As the assets gain or lose in market value, the individuals who pooled their funds either accrue the gains or absorb the loss. In exchange for structuring the fund, fees are charged to the individuals by the administrator. 

UITF is literally a collective fund. The nature of this instrument is that of a “trust” product. This means that the entity offering the UITF (i.e., the trustee) administers the fund in behalf of the individuals (i.e., trustors) whose resources have been combined into the fund. There is no guaranteed return for this product because the underlying investments of the fund can make or lose money.

UITFs are what we call “open-ended funds” which means that the institution offering the fund can continue to pool the resources of as many investors who may be interested to invest in the fund. Redemptions — individuals selling off their UITF holdings — are allowed anytime. To keep track of these inflows and outflows, participation into the fund is conveniently measured in “units”. The current value of each unit is referred to as Net Asset Value Per Unit (NAVPu). This makes it easy for investors to know the market value of their investment since they only have to multiply the number of “participation units” they purchased by the NAVPu.

UITFs are regulated by the Bangko Sentral ng Pilipinas (BSP, the Manila central bank) under Circular 447. Only BSP-accredited trust entities are allowed to offer and administer UITFs. There are several types of UITFs from which the interested investor can choose. There are UITFs that invest in shares of stocks only, bonds only or money market instruments only. There are also “balanced funds” which invest into a more diversified portfolio of assets. Investors can also pick whether the fund restricts itself to assets that are denominated only in either Philippine Pesos or US Dollars.

So on the whole, investors are faced with three levels of choices in purchasing a UITF: (a) from which trust entity do they purchase the UITF; (b) what instruments they want the UITF to buy; and (c) in what currency.

- From "What you should know about UITFs" by Johnny Noe Ravalo, published in http://www.inq7.net/

[tags]UITF, UITFs, Unit Investment Trust Funds, UITF philippines, UITF primer, Bangko Sentral ng Pilipinas, Inquirer, Philippine Daily Inquirer, NAVP, NAVPS, NAVPu, UITF NAVPu, Net Asset Value per unit[/tags]