Here’s everything you need to know about UITFs

Saving your money alone is not enough to secure your financial future. You need to invest your money and let it work for you to see it grow over time. However, many people are still intimidated by the world of investments because of the belief that you have to have a lot of money and you have to devote your time to watch your investments to grow. But, contrary to popular belief, you don’t need to watch your investments from time to time and you don’t need a lot of money to start investing. Moreover, in investing, you can still enjoy the benefit of enjoying life while your money is growing and working for you.

What is UITF and how does it work

UITF or Unit Investment Trust Fund is an open-ended pool of investments funded by various investors, which is operated and administered by a trust entity and made available by participation. This type of investment is usually offered by banks and the pooled funds are actively managed and handled by professional fund managers so all you have to do is to sit back, relax and let your money work for you. The below infographic clearly illustrates how does a UITF work.

What are the types of UITFs

As an investor, one of the major concerns you have is what type of UITF is best for you. There are different types of UITF where you can invest your money depending on your risk appetite. Here are the 4 types of UITFs and their certain risk levels:

• Money Market UITFs — composed of special deposit accounts and time deposits that mature in one year or less. This is suitable for conservative or risk-averse investors who don’t want to expose themselves to risks.
• Bond UITFs — composed of both government and corporate bonds with a longer maturity date than money market funds. This type of UITF is best for moderately conservative investors who prefer a low-risk type of investment at the same time higher returns than Money Market UITFs.
• Balanced UITFs — composed of both fixed-income securities and equities or stocks. Balanced funds are perfect for moderately aggressive investors who are willing to take more risk by investing money in equities at the same time want to minimize risk by including more conservative security such as bonds.
• Stock or Equity UITFs — is a type of fund where your money is invested in shares of publicly-listed companies. Unlike investing in the stock market where you will be the one who will create and manage your stock portfolio, in UITFs, your investment is diversified into some of the Philippines’ largest corporations like Ayala Corporation (AC), Philippine Long Distance Telephone Co. (PLDT), among others. This type of investment is best for aggressive investors who are willing to take a risk and who would like to receive larger returns but do not have the time and knowledge to invest in the stock market.

Here is also a simple infographic which can help you understand the risk appetite further:

How to make money in UITF

When you invest in UITF, you will be given units or Net Asset Value Per Unit and you will be able to earn in UITFs when the NAVPU goes up. For instance, the NAVPU is at P2/unit and you want to buy 5000 shares of UITF, you need to have P10,000 for you to invest in. After X number of years, the NAVPU is now at P4/unit so your shares are now worth P20,000 instead of P10,000 which is a 100% gain.

On the flipside, if the NAVPU is less than what you’ve paid for, then that means that you lose money. But, don’t fret as it is just a paper loss or an unrealized capital loss. It will only become actual loss when you sell your units which is less than the price you’ve bought them.

Advantages of investing in UITF

The main benefits of being invested in UITF are asset diversification and professional fund management. In asset diversification, investors have the opportunity to invest in assets that are not normally accessible to them like high-yielding corporate bonds or expensive stocks. On the other hand, professional fund management is when a professional fund manager will do the decision making part and do the work of making your money grow. This means that you don’t have to track your investments daily as there is already someone doing it for you.

How to start investing in UITF

If you want to start investing in UITFs today, you need to go to your preferred bank and tell the bank representative that you want to invest in UITFs. Usually, they will ask you to answer a Client Suitability Assessment test to determine which UITF is best for you depending on your risk tolerance. You may also be asked to fill out an application form and asked to present a proof of identification so make sure you bring some IDs with you before you head out to your preferred bank.

Here are some of the top banks in the Philippines that offer Unit Investment Trust Fund investment (please click the bank logos for more details):

Perfect for beginners

The best thing about investing in UITF is that there is a professional fund manager who will grow your money for you. There’s no need for you to do technical or fundamental analysis just like the stocks or check the market situation as the fund manager is doing all the work for you. So, if you are a beginner or if you are someone who does not have much time to manage your own investments, then UITF is perfect for you.