Unit Investment Trust Fund: What Is UITF and How Do I Invest?

More Filipinos are trying their luck in investment, according to a study conducted by Sun Life Asset Management Co. Inc. ^[1]. 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.

What is Unit Investment Trust Fund?

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.

Different Types of UITFs in the Philippines

There are four kinds of UITFs in the Philippines. Familiarize yourself with them below.

Money Market Funds

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.

Bonds

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

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.

Stocks or Equities

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.

Read more: How to Invest in Stocks for Beginners (Even with Little Money)

How do I earn from UITF?

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:

• Stock price increase. Your UITF will earn money when the company shares you invested in increase price. This can happen if there are many investors attracted to the company’s prospects, such as business projects and expansions.
• Dividend. This is a sum of money that a company gives to its shareholders out of its profits. The company can choose to release some of its annual profits to shareholders, such as yourself, or invest it back to the business.
• Bonds. If your unit investment trust fund is invested in bonds, you will earn a profit when the borrower pays the interest. Bonds are issued as proof of indebtedness by both private companies and the government.

Pros and Cons of Investing in UITF

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.

Pros

• Easy way to earn passive income
• You can invest with a capital as low as PHP 5,000^[2]
• Diverse and invested in various industries and companies
• There is a professional fund manager who will do the legwork for you

Cons

• Your return on investment varies
• Not guaranteed or insured by the Philippine Deposit Insurance Corporation
• Units do not give you shareholders rights, unlike in stocks
• You cannot control where you would like to invest your money. The fund manager decides which assets to buy.

Is UITF the right investment for me?

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.

• Your goal. Before deciding to invest in unit investment trust fund, evaluate your goals. Why do you want to get invest in trust funds? What is your risk tolerance? How much do you want to invest? Look at the bigger picture and how this investment can help you reach your financial goals.
• The company. Many companies offer this type of investment, so it’s best to narrow down your choices. Make sure the company is SEC-regulated. Visit the company in person and inquire about their unit investment trust funds. Don’t be afraid to ask them more questions if you have any as will help you better understand where you are investing your money.
• Type of UITF. Do want to invest in stocks? Bonds, perhaps? Your financial goals and risk tolerance can help you choose the best type of trust fund to invest in. You can also talk to a bank representative about your choices.

How to Invest in UITF

Here are simple steps to get you started with an unit investment trust fund:

1. Visit your preferred bank’s nearest branch
2. Tell the representative that you would like to invest in UITF
3. Accomplish the Client Suitability Assessment test to determine which trust fund best fits your risk tolerance
4. Fill out an application form and present your valid ID
5. Wait for your application to be processed.
6. Once you’re all set, monitor your investment. Talk to your fund manager about your 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.

Fees and Charges Involved

When you invest in UITF, you have to be aware of the following fees and charges:

• Service fee or trust fee of 0.5 to 1.5% charged to the fund
• Sales charge of up to 2% of the NAVPU
• Withholding tax of 20% on capital gains
• Exit fee of up to 1.50% charged to the fund if you fail to follow the holding period

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.

What is NAVPU?

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.

Formula to get NAVPU

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.

How to compute UITF earnings?

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

Final Thoughts

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’.

Read more:

• Investment 101: Investing for Beginners
• Mutual Funds And UITFs: Investing For Beginners
• Should You Save or Should You Invest?
• Best Performing Mutual Funds and UITFs

Sources:

• • ^[1] More Pinoys are into investing to reach financial goals–study (Nicolas, Business Mirror, 2020)
  • ^[2] Unit Investment Trust Fund: It’s safe and wise (Garcia, Business Mirror, 2019)

Moneymax

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