How to Invest in UITF Philippines - The Thrifty Pinay

How to Invest in UITF Philippines

Hey there! If you have zero to minimal knowledge about UITFs & Mutual Funds, then you’ve come to the right place. Before we start, below are the outlines of what we’ll be learning in this post:

  • What are UITFs?
  • How do you open a UITF?
  • How do you earn from UITFs?
  • How much profit would you earn in UITFs?
  • Are there any deductions after I redeem my investment?
  • Will I be issued any document as proof of my investment?
  • What are the types of UITFs and how do you choose the right one for you?
  • Are UITFs PDIC insured?  Will I be able to retrieve my funds?
  • Are there risks associated with investing in UITFs?
  • What’s the difference between UITFs and Mutual Funds?
  • Why should you invest in UITFs and Mutual Funds?

As a former bank employee and having offered this investment to clients, I will try to explain this as simple as possible just so you can have a good understanding and more confidence towards investing this product. But should you have any questions, don’t hesitate to ask and I’ll try to answer them to the extent of my knowledge.

 How to Invest in UITF Philippines

What is a UITF?

UITF stands for Unit Investment Trust Fund and is a   “collective” investment scheme that is offered by, if not all, by commercial banks.  Focus on the word “FUND” because basically that is what it is-  an amount of money from many individuals that is pooled.

Example:

Allen, Bert, and Carl went to  Bank  XYZ to invest their money in a UITF.  Allen gave P30,000.00, Bert gave P20,000.00, and Carl gave P10,000.00. Total money invested is P60,000.00.  Bank XYZ’s fund manager is Dong.  Dong, being the smart investment banker that he is, will use the P60,000.00 and invest it in more complicated investment products such as stocks, bonds, government securities and many others.

How do you open a UITF?

Basically you just go to the bank and bring the necessary docs such as IDs. First things first, the new accounts staff will let you answer a Client Suitability Assessment form  which will help you determine what kind of investor  you are, your risk appetite and the kind of UITF that suits your risk profile and investment objective. This questionnaire is just a guide and is optional if you want to follow it or not.

How do you earn from investing in a UITF Philippines?

I want you to focus on the word “UNIT” because basically, you are buying units or shares from the bank in exchange for the money you will invest. That’s why there is the word “unit” in UITF.

The price of one unit is called NAVPU which is the acronym of Net Asset Value per UNIT.  Notice that it also has the word “unit” meaning every unit you buy has a price.

Gains or losses are computed via NAVPU from the time you opened your UITF to the time you close or redeem it.

Everyday, the NAVPU changes. On some days, it increases. On other days, it fluctuates. Why? It depends on the fund manager’s performance for that day.  Dong, in our example above (who has everyone’s money) is doing his best to make the money grow by making good and sound investments. At the end of the day, if the market went well, the NAVPU is higher compared to the NAVPU yesterday. If the market went down, it is lower than that of yesterday.

How to invest in UITF Philippines
How to invest in UITF Philippines

How’d you know if the fund manager had a good day or bad day?

Check the NAVPU. If  yesterday it was 2.00 and the NAVPU today is 2.01 then it was a good day. If the NAVPU decreased to 1.99, then it was a bad day.

The NAVPU is usually shown to the public at night time, usually posted at the bank’s website. For other banks, it is published the following banking day.  Later I will tell you why this detail is really important.

Using the same example above, supposing Allen, Bert, and Carl invested on June 18, 2020 the NAVPU was P10. With their respective investments, Allen then has P3,000 units, Bert  has P2,000 and Carl with P1000 units. Computations below:

Allen : P30,000 divided by P10/Unit = P3,000units

Bert: P20,000 divided by P10/unit=P2,000units

Carl: P10,000 divided by P10/unit=P1,000 units

After one year, on June 18, 2021, the NAVPU rose to P20.  Allen and Bert decided to redeem the investments at this point. So they had the following GAINS:

Allen: P3,000 units x P20/unit = P60,000 – P30,000 (initial investment) = P30,000 GAINS

Bert : P2,000 units x P20/unit= P40,000 – P20,000 (initial investment) = P20,000 GAINS

Indeed Allen and Bert gained from investing in a UITF.

Let’s say with Carl, on Dec 18, 2020, he needed the money so badly he wanted to pull out his investments. Unfortunately, the market crashed and was going on a downtrend, thus affected the NAVPU. The NAVPU on that day was P9.  Carl incurred the following loss:

Carl: P1,000 units x P9/unit =P9,000 – P10,000 (initial investment) =  (P1,000) LOSS

If you understood all that then you’re doing a good job! That’s how UITF investing works!

Please be reminded that this is a simplified version and there might be fees depending on the bank you have chosen. Always read the terms and conditions before investing in UITFs.

How to invest in UITF Philippines

 

How much profit would you earn in UITFs?

It depends upon the fund you’ve chosen to invest in, the period or how long you’ve invested it, and the performance of the fund.  Some gain higher returns and earn thousands while some gain millions. Apparently, the higher the amount you invested and the longer it is invested, the higher the return or profit. So I recommend investing in long term.

 

Are there any deductions after I redeem my investment?

Focus on the word “NET” in NAVPU. Net means everything has been deducted including the  tax and fees.  So the amount of your investment upon redemption is based already on the NAVPU, no more deductions are to take place.

Will I be issued any document as proof of my investment?

Yes, the bank will (and should) issue a certificate that states exactly the amount of your investment, date you invested, NAVPU of the day, and how many units you own. Upon redemption, the bank will ask you to return this doc.

Are UITFs PDIC insured?  Will I be able to retrieve my funds?

No. UITFs are not PDIC insured (Philippine Deposit Insurance Corporation.)

BUT, according to Circular no. 653, section X421 books and records of the Bangko Sentral ng Pilipinas it states:

The bank’s trust department or investment management department shall keep books and records on trust, other fiduciary and investment management accounts separate and distinct from the books and records of its other businesses  and shall follow the Financial Reposting Package for the Trust Institutions prescribed by the BSP.

Therefore, in the unlikely event that the bank closes and liquidates, UITF assets cannot be touched by the creditor. So meaning, UITF investors will be able to withdraw their investments at its market value.

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What are the types of UITFs and how do you choose the right one for you?

Once you know how to Invest in UITF Philippines, you will be faced with its different types.

The fund manager (or managers) pools everyone’s money and invests it in different investment products depending on the type of UITF they have chosen. These are namely:

Money Market funds– these are invested in short term securities and matures in one year or less

-for conservative investors, with a low risk appetite and has goal within 3-6months

Bond funds  – these are issued by the government and large corporations and are invested in fixed income securities

-for moderately conservative investors, with a moderate risk appetite and has goal within 1yr

Balanced fund  – from the word itself “balanced” meaning a good mixture of fixed income securities and equities

-for moderately conservative investors, with a balanced risk appetite and has goal within 1-3yrs

Equity Funds  -these are invested in shares/stocks, usually shares of Publicly-listed companies

-for aggressive investors, with a high risk appetite and has goal for 3 yrs and above

Are there risks associated with investing in UITFs?

Just like any other investment products, UITFs are subject to market risks and investment related risks. No one can guarantee if you will earn gains from your investment so always keep in mind that losses are possible.

Remember I mentioned earlier that the NAVPU  of  the day can be viewed on your bank’s website  at around night time?  Bear in mind that when you go to the bank to redeem your UITF, you will not know what  the NAVPU of the day is, meaning you won’t know yet how much will be the value of your investment when the bank returns it to you. You have to wait up until the night to view the NAVPU or you can just visit the bank the following day to withdraw your money because for sure, they have transferred the money to your personal account for you to be able to withdraw it.

The same goes when applying for a UITF. You will not know yet how many units you are able to purchase with your money. BUT, to give you an idea, you can always check the performance history of the UITF you have chosen. The discrepancy (difference) of the NAVPUs of the previous days are just small compared to the NAVPU of the present day.

What’s the difference between UITFs and Mutual Funds?

Now that you already know how to Invest in UITF Philippines, it’s time to differentiate it from a Mutual Fund.

Yes, I’ve been asked about this numerous times.

Just like UITFs,  mutual funds are also a pooled investment where the money comes from different individauls and are invested in different investment products.  The method of gains and losses is similar to UITFs just like the example we’ve discussed earlier.

Though they have similarities, refer to the chart below to know their differences:

How to invest in UITF Philippines

I personally believe that neither one is better than the other. Do not compare UITFs and Mutual Funds in general. What’s best is to study their historical performances of the specific fund you’d like to invest in.

Why should you invest in UITFs and Mutual Funds?

As an investor of these two, you are relieved from the responsibility of studying the market because this responsibility is now being shouldered by the investment company whom you have laid trust and confidence on, and they will make sure your money will grow.

 UITFs & Mutual funds will work for you if you don’t need the money right away and can stand risk but don’t have ample time to learn about stocks and the market.

This is the opposite of investing in the stock market. In the stock market, it’s up to you to use your own knowledge, skills and time to incur gains. And this is one of the many reasons why investors choose to put their money in UITFs and Mutual Funds. Of course, unless you’ve hired a stock broker to buy stocks for you, then that’s a completely different story.

If you lack time to analyze the stock market and keep track of the market trends yet you desire for higher returns compared to time deposits and savings account, then UITFs and Mutual Funds are what you need.

 

Final Words for “How to Invest in UITF Philippines

I hope this article was able to help you know the difference between UITF & Mutual Funds. And if you should know, I’ve had investments in both and you should too!

If you found this “How to Invest in UITF Philippines” guide helpful, please like and share this post!

-TheThriftyPinay

Disclaimer: These rules apply to most banks.They may differ from your local bank, depending on government changes, and individual banking rules. This guide is generally speaking and taken from my experience working as a new accounts staff and sales officer in several different institutions in my banking career of  5 years.

 

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https://thethriftypinay.com/2020/05/24/table-of-investments/

By Ameena Rey-Franc

Recognized as one of the Top Finance Blogs in the PH. Ameena Rey-Franc (founder of TTP) is a former Banker and BS Accountancy graduate turned Blogger, Keynote Speaker, and entrepreneur. Currently an RFP delegate, she is also the Author of a book about Financial Resilience and has held seminars for reputable companies like GrabFoodPH, Pru Life UK, VISA, JPMorgan Chase& Co., Paypal, Fundline, Moneymax, and many more. The Thrifty Pinay's mission is to empower women to LEARN, EARN, and be FINANCIALLY-INDEPENDENT no matter what life stage they are in.