UITFs vs. Mutual Funds
Both are pooled funds. Both offer higher returns compared to banks but also are not risk free. Both are measured in terms of the net asset value per unit (NAVPu) or share (NAVPS). So what’s the difference between UITFs and Mutual Funds?
A unit investment trust fund or UITF is a banking product that replaced common trust funds (CTFs). It is managed by the offering bank’s treasury department or group. A mutual fund, on the other hand, is offered by an investment company and managed independently by an appointed fund manager, which may or may not be related to the investment company.
For mutual funds that are open-ended, the investment company stands ready to buy at the prevailing net asset value (NAV). For close-ended mutual funds, it must be tradeable in an organized securities exchange. That is not the case for UITFs. You redeem your investment at its prevailing NAV from the issuing bank.
The differences include not only the appropriate risk disclosure of the products, but also regulation. Investment companies, the originator of mutual funds, are governed by the “Investment Company Act of the Philippines” (patterned after a similarly titled law in the US). Investment companies are regulated by the Securities and Exchange Commission (SEC). Professionals, especially salesmen of mutual funds, have to be licensed. The law requires them to publish their NAV everyday. These companies have to submit voluminous regular reports to the SEC.
In the case of UITFs, there is no specific law that currently applies to it. While banks are governed by the “General Banking Law” and are regulated by the BSP, there are no specific provisions on CTF, UITF, or the like. Guidelines are in the form of BSP circulars. Currently, banks are required to report their UITF NAV weekly, but will be done everyday eventually. They do not submit voluminous related reports to the BSP. On top of that, bank personnel selling UITF units are not required to have a license.
Many believe investors have due recourse in the case of mutual funds but do not enjoy the same in the case of UITFs, which explains why a lot of investors lost money during the UITF crash this summer and yet no bank being liable for it.
For additional readings about UITFs, here is our UITF Investing Guide:
- What are UITFs (Unit Investment Trust Funds)?
- Comparison between UITF and Mutual Funds
- Monthly Performance of each UITF
- PMT Forum Discussion: Mutual Funds and UITF
- More articles about UITF Investing