Investing for Beginners: UITF 101

Published: November 26, 2015 | Updated: January 20, 2020 | Posted by: Bea Bongat | Personal Finance


Investing for Beginners
People dream of “making their money work for them” instead of “them working for money”. This means that you’re enjoying life instead of living life for the sake of money. When your money earns you more money, this is called passive income, which is the opposite of active income. Active income is money derived directly from the work you put out. Examples of active income are your wages, tips, and commissions. On the other hand, passive income is income derived from minimal participation on your part. Examples of passive income are the returns you get on your investments, rent payments, and payments you get from books and other informational products.

Unlike rentals where you need a large starting capital to own real estate or taking the time to write a book first before you can publish, sell, and then reap the rewards, investments allow you to earn passive income without the large starting capital needed in real estate or the time and effort in writing an informational product. If you want to invest but have barely any knowledge on where to invest, one of the best options is through unit investment trust funds (UITFs).

What are UITFs?

A unit investment trust fund (UITF) is a pool of investments funded by various investors. You can think of one UITF as a basket with different fruits. One basket may be filled with mangoes, the other with pineapples, and a third is a combination of mangoes and pineapples. In the case of a UITF, various holdings (instead of fruits) make up the UITF. As with a fruit basket wherein you’re in charge of picking which fruits to buy, professional fund managers handle and manage the holdings of UITFs. Since these professionals actively manage the fund, you can sit back, relax, and make your money work for you.

As an investor, the only major concern you have is to determine which UITF is best suited for you. There are different types of UITFs, and where you invest in depends on your risk profile. Are you scared of risk or the opposite? Below are the different types of UITFs and when to pick each one:

Read more: Marvin Fausto on the Best Investments for Your Goals

What are the types of UITFs and which should I pick:

1. Money Market UITFs

Many market UITFs are composed of special deposit accounts and time deposits which mature at a specific date (usually a year or less). The yield you’ll get from money market UITFs are higher than what you’ll get from the interest in your savings account.

When should I pick this? Money market UITFs are suitable for conservative investors who don’t want to expose themselves to risk. Even though UITFs, including money market funds, are not insured by the Philippine Deposit Insurance Corporation (PDIC), money market UITFs are still considered much safer than other types of UITFs.

What are the best performing money market UITFs (October 30, 2014-2015)?
Format Follows: ROI – Fund Name

  • 1.80% – BDO Institutional Cash Reserve Fund
  • 1.74% – DBP Unlad Kawani Money Market Fund
  • 1.72% – DBP Unlad Pamahalaan GS Money Market Fund

 2. Bond UITFs

Bond UITFs are composed of both government (fixed rate treasury notes (FXTNs) and retail treasury bonds (RTBs)) and corporate bonds with longer maturity dates than money market funds. Bonds are considered ‘IOU’s (‘I owe you’) since they are debts where the lender (you) lends money to a borrower (government or corporation). Governments and corporations take on debt in the form of bonds to fund projects that will drive the entity’s growth.

When should I pick this? Bond UITFs are suitable for moderately conservative investors who want to take on minimal risk and experience higher returns than the ROIs from money market UITFs.

What are the best performing bond UITFs (October 30, 2012-2015)?

Format Follows: ROI – Fund Name

  • 21.26% – SB Peso Bond Fund
  • 18.89% – AUB Peso Investment Trust Fund
  • 17.45% – BPI Odyssey Tax-Exempt Peso Fixed Income Fund

Read more: Mutual Funds 101

3. Balanced UITFs

Balanced funds are composed of both conservative securities (SDAs, FXTNs, bonds) and riskier ones such as stocks. Using the fruit basket example earlier, balanced funds are likened to a fruit basket with both mangoes and pineapples – a combination of items, or in UITFs, a combination of holdings.

When should I pick this? Balanced UITFs are suitable for moderately aggressive investors who are willing to take on more risk by investing in stocks but at the same time want to minimize risk by including more conservative securities such as bonds and SDAs.

What are the best performing balanced UITFs (October 30, 2010-2015)?
Format Follows: ROI – Fund Name

  • 55.55% – SB Peso Asset Variety Fund
  • 47.89% – UCPB Balanced Fund
  • 34.00% – BPI Balanced Fund

 4. Stock or Equity UITFs

Equity UITFs are composed of 100% stocks. Unlike investing in the stock market where you’ll buy stocks individually and create your own stock portfolio, in equity UITFs, you already have a pool of stocks including some of the Philippines’ largest corporations such as Ayala Land, Inc. (ALI: PS), SM Prime Holdings, Inc. (SMPH: PS), and Phil. Long Distance Telephone Co. (TEL:PS) among others.

When should I pick this? Equity UITFs are suitable for aggressive investors who are willing to take risks to experience much larger yields but do not have the time and knowledge to invest in individual stocks.

What are the best performing equity UITFs (October 30, 2010-2015)?
Format Follows: ROI – Fund Name

  • 73.36% – SB Peso Equity Fund
  • 63.52% – UCPB Equity Fund
  • 61.30% – AB Capital Equity Fund

How to subscribe to a UITF

You can go to your local branch and tell the bank representative that you want to invest in UITFs. The representative will ask you to answer a Client Suitability Assessment test to determine which type of UITF is best suited for you according to your risk tolerance. You will also be asked to fill up an application form and present a valid ID. If you’re opening a UITF or investment account in the same bank that you have a savings or deposit account (joint accounts are not considered), you can subscribe or buy more UITF units via your online account provided that your savings or deposit account has enough funds. Some banks also offer regular subscription plans where the money from your deposit account is automatically transferred to your investment account on a regular basis. You can read more on this by clicking the link below.

Read more: 3 Simple Ways to Make Investing a Breeze

How do I make money from UITFs

For UITFs, you earn money when you sell your UITF at a higher rate than when you bought it. The price of one unit of a UITF is expressed in Net Asset Value Per Unit, or NAVPU. This means that if you want to buy 5,000 shares of UITF Abc at Php 1.00 a unit, you need to invest Php 5,000. After X years, you learn than the NAVPU of UITF Abc increases from Php 1.00 to Php 2.00 a unit. Your shares are now worth Php 10,000 instead of Php 5,000. That’s 100% gain. That is how you earn in UITF investing.

Perfect for beginners

The best part about investing in UITFs is you don’t have to actively handle your funds. There’s no need to conduct fundamental and technical analyses as you do in stocks or to check your UITF’s performance by the hour since professional managers do the following for you. Just make sure to check your online investment account regularly (monthly or quarterly), and when the time comes that you’re ready to withdraw your investments, you’ve given truth to the statement ‘make your money work for you’.

*Note: All data for UITF returns are from here.

*Disclaimer: This article does not endorse any specific company or stocks. The article is for informational purposes only.