Published: September 8, 2020 | Updated: October 15, 2020 | Posted by: Moneymax | Personal Finance
More Filipinos are trying their luck in investment, according to a study conducted by Sun Life Asset Management Co. Inc. . As compared to businesses like renting out a property that demands a larger capital, investments like a unit investment trust fund allows you to earn passive income even with small capital. Interested to know more about UITF? Learn all about it in this article and how it can jump start your investment journey.
Table of Contents
UITF is a pool of investments funded by various investors. You can think of it as a basket with different fruits — one basket may contain mangoes, the other with pineapples, and a third basket contains a combination of two fruits. In the case of a trust fund, various holdings, instead of fruits, make up the investment.
As with a fruit basket wherein you can decide which fruits to buy, professional fund managers handle and manage the holdings of UITFs. Since these professionals actively manage the fund, once you have set them up, you can sit back, relax, and make your money work for you.
There are four kinds of UITFs in the Philippines. Familiarize yourself with them below.
Money market UITFs have special deposit accounts and time deposits that mature at a specific date (usually a year or less). The yield you’ll get from money market UITFs is higher than what you’ll get from the interest in your savings account.
This type of unit investment trust fund is 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 trust funds are considered much safer than other types of UITFs in the market.
Bond UITFs have both government (fixed-rate treasury notes) and retail treasury bonds as well as corporate bonds with longer maturity dates than money market funds. Bonds are considered IOUs (I owe you) since they are debts wherein the you, the lender, lends money to a borrower. The borrower can be the government or a corporation. These borrowers take on debt in the form of bonds to fund projects that will drive an entity’s growth.
Bonds are suitable for moderately conservative investors who want to take on minimal risk and experience higher returns.
Read more: 5 Smart Reasons to Invest in Bonds
Balanced funds contain both conservative securities (fixed-rate treasury notes and bonds) and riskier ones such as stocks. This type of unit investment trust is 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.
Equity UITFs are 100% stocks. Unlike investing in the stock market where you individually buy stocks and create your own stock portfolio, equity UITFs already have a pool of stocks including some of the country’s largest corporations, including as Ayala Land, SM Prime Holdings, and Phil. Long Distance Telephone Co., among others.
This type of unit investment trust fund is suitable for aggressive investors who are willing to take risks to experience much larger yields yet do not have the time and knowledge to invest in individual stocks.
Your unit investment trust fund can be invested in stocks and bonds to make a profit. Your fund manager will do most of the leg work on behalf of you and other investors. The fund earns through a stock price increase, interest, and dividend.
Read below what these terms mean:
Before investing in UITF, you need to be aware of its advantages and disadvantages. This can help you make an informed decision regarding where you allot your money.
Unit investment trust fund is just one of the many ways you can invest your hard-earned money and make passive income. However, before you go to the nearest bank, you need to think this decision through. Here are some of the factors you should consider.
Here are simple steps to get you started with an unit investment trust fund:
If you’re opening a UITF or investment account in the same bank where you have a savings or deposit account, you can subscribe or buy more units via your online account. However, you should have enough funds on your savings or deposit account.
Some banks also offer regular subscription plans where the money from your deposit account is automatically transferred to your investment account regularly.
When you invest in UITF, you have to be aware of the following fees and charges:
Your bank may charge you additional fees apart from the fees and taxes listed above. Ask your bank representative about unit investment trust fund fees before submitting your application.
NAVPU or Net Asset Value Per Unit is the unit price or the current net market value of the fund. You can compute your NAVPU by taking the total market value of the investment fund minus the expenses and liabilities. Then, divide the result by the total number of units of participation.
NAVPU = total market value of the investment fund — expenses and liabilities
Divided by total number of units of participation
For example, the total market value of the investment fund is PHP 40 million, and it has PHP 20 million on expenses and liabilities. The UITF also has a total of 700,000 units of participation. The NAVPU computation should be computed like this:
NAVPU = (PHP 40 million — PHP 20 million) / 700,000
The NAVPU is PHP 28.57. This means if you purchased your UITF for PHP 28.57 per unit, you need to sell it at a higher price than that. That is how you earn in UITF investing.
Multiply the daily NAVPU with the number of units you have. Your return on investment (ROI) is the difference between the current amount of your investment minus the principal amount you invested. Here is a simple formula to get your ROI:
ROI = (your number of units of participation x current NAVPU) — principal amount you invested
Let’s say your principal amount of investment is PHP 45,000 and have 15,000 units, and the current NAVPU is PHP 4.50. Your ROI would be computed as follows:
ROI = (15,000 x PHP 4.50) — PHP 45,000
67, 500 — PHP 45,000 then your ROI would be PHP 22,500
With a unit investment trust fund, you don’t have to actively handle your funds. There’s no need to conduct fundamental and technical analyses as you do in stocks. You also don’t have to check your UITF’s performance by the hour since professional managers do that for you. When investing in UITF, make sure to check your online investment account regularly. 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’.
With a goal to help Filipinos lead healthier financial lives, Moneymax regularly publishes tips and tricks on personal finance and lifestyle, among many other topics. For more finance-related news and articles, follow Moneymax on Linkedin.