Unit investment trust fund or UITF is another form of investment that is available here in the Philippines. This is basically another ‘paper assets‘ that can help our money grow. Today, I will share some basic information about unit investment trust fund that I gathered along with our journey to the next investment we will venturing to.
We’re almost done with our emergency fund so were looking for types of investments that can help us beat inflation and make our money grow. We’re done with our emergency fund, read it here.
Of course we know that everyone needs to have their own financial goals before start investing. So while we are planning our next financial goals for our next investment, I’m doing some research what are the investment options we have.
This article will share all about the basic and fundamentals of unit investment trust fund.
What is unit investment trust fund?
Unit investment trust fund or UITF in a layman’s term is another pool funds which is operated or managed by a trust entity usually by banks. Individual and private investors pooled their money into different types of unit investment trust fund they selected and the unit fund manager will take care of the investing decisions.
As per uitf.com.ph, each UITF product is governed by a Declaration of Trust (or Plan Rules) which contains the investment objectives of the UITF as well as the mechanics for investing, operating and administering the fund.
Different types of unit investment trust fund
Here in the Philippines, there are four type of unit investment trust fund or UITF. Since it’s a pooled funds, it is almost the same with the types of mutual funds.
1. Money Market funds
Funds are invested principally in short term, fixed income deposits and securities with a portfolio duration of one year or less. If you have short term financial goals this might be the option for you. Please mind that return for this investment might be lower since it will be invested mostly in fixed income deposits and securities.
2. Bond funds
Funds are invested in bonds and other fixed income securities with the duration of more than a year. Investment return on this type of unit investment trust fund is higher that money market funds since the duration of investment is longer.
3. Balanced funds
This type of unit investment trust funds is invested in a mixed of equity (stocks) and fixed income securities. In a nutshell, the risk is being balance since the fund is being diversified to low risk and high risk investments.
4. Equity funds
The funds are being invested primarily in stocks. This type of unit investment trust fund gives the highest return in all types given that the investment is long term. If you got longer horizon and long term financial goals, this type might be the one for you.
How unit investment trust fund works?
In a nutshell, you as the same with other investors open a UITF account in a bank. You’re going to select which type of unit investment trust fund will suit your needs and goals. Basically it should depends on your financial goals and risk apetite.
Once you’ve chosen what type of UITF is best for you, then the next thing you need is to purchase “units” of participation in the fund. The NAVPU or Net Asset Value Per Unit is the price term use in UITF. If the NAVPU price is P5.00 then you want to invest P50,000, you can basically purchase 10,000 units of that funds. The bank will issue a certificate as proof of your investment.
The unit fund manager will take care of the investments and investing decisions.You will earn money in unit investment trust fund when you sell your purchased units and if the current NAVPU price is higher from NAVPU price when you purchased the units.
Let’s use the above example. Since you purchased 10,000 units above from P5.00 NAVPU, you’ll earn money when the NAVPU price become higher than P5.00. If after 3 years for example the NAVPU price became P10.00, you’re P50,000 will now became P100,000. It is being computed as NAVPU price x units purchased (10,000 units x P10.00 = P100,000).
That’s a 50% growth of investments in just 3 years! Well that’s just for illustration.
Please note that you’ll only earn or lost money when you sell your units. It’s only a ‘paper gain‘ or ‘paper loss‘ if units are not being sold back in the banks or called redeeming your investments.
So if the NAVPU price grows 10x higher in 3 years but you didn’t sell your units, you’ll not realize the return because it’s a paper gain only. That’s why monitoring your investments is also important. Hope you get the idea. 🙂
Where to open a unit investment trust fund here in the Philippines?
As mentioned above, most of the local banks here in the Philippines offer unit investment trust fund. You can basically open an account with them by going to their respective branches. Initial investments usually costs around P10,000 depending on the banks.
In my opinion, it is advisable to open an account in the bank where you have existing savings account. Less requirements and more convenient since you can transfer funds easily from your existing account especially if you’ve enrolled to their online banking facility.
As I’ve read, BDO offers their EIP (Easy Investment Program) which offers you to start an investment in P1,000. I will write detailed article about that in the future. For now, the best option is to inquire on your chosen banks.
Update: We’ve open a BDO UITF online last November 2016. Check here.
To give you some idea for comparison and illustration purposes, here are the top performing unit investment trust fund here in the Philippines for the last 5 years (May 25, 2010 – May 25, 2015).
Please note that the historical gains are not guarantee for future return of investment. Data are taken from uitf.com.ph official website.
Money Market funds
Alright that’s it! I hope this short article provided you some basic and fundamental knowledge about unit investment trust fund. In the future article, I will share my personal experience and reviews about this kind of investment.
If you have questions, you can put there in the comment section below and I will try to answer them as best as I can. If you’re already investing in unit investment trust fund or UITF, you may share your views and experience to provide insights from other readers.
Unit investment trust fund or UITF is another good investment option for everyone. This will basically help you achieve your financial goals without so much effort on your end.
Update: We’ve open a BDO UITF online last November 2016. Check here.
If you’re looking for other types of investment, this might be for you.
Joan Bustos says
Hello! im looking for investment and heard about this UITF. im just a regular office worker who have savings. i want to put portion of my savings to UITF.
as what is mentioned. The fund manager will take care of the investment and decision making. i just want to clear. is selling my units when NAVPU becomes higher from what i purchased is done by the fund manager without me monitoring it? or is it me who will do the monitoring and advice the fund manager that i will sell my units?
Hanna Jessica Berbo says
Hi I akso have the same question with Ms. Joan. Thanks!