Investing in UITFs

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If you’re new to investing, like I was years ago, an entry level type of investment is UITF or Unit Investment Trust Funds.

UITF for starters

UITFs are desirable for entry level investors because of their ease of entry – units of UITFs are easy to buy at certain commercial banks (just ask your local bank for them). Banks only require a minimum investment of about PhP 5,000.00 (maybe even less now). They are also easy to manage – you don’t actually manage them as they’re managed by fund managers, which are paid a fee (taken out of your investment).

If you are interested in trying out UITFS, here are some essential information on what they are.

What it is

A UITF is an open-ended pooled trust fund, denominated in pesos or US dollars (depending on your selected fund), which is operated and administered by a trust entity, usually a commercial bank. The units of a UITF are governed by a Declaration of Trust or Plan Rules, which contains the rules for investing, operating and administering the fund.

“open-ended pooled trust fund”?

This essentially means that UITFs are similar to mutual funds such that your money is pooled with others’ into one fund. They are open ended because they allow holders to invest or redeem their investment at any time. The fund is invested by the trustee or bank in various types of financial securities (if you want to know what these are, click here) with the aim of maximizing returns within reasonable risk levels.

A person invests in a UITF by buying units of participation in the fund. This unit represents your proportionate share in the total value of the fund. As an investor you don’t own any specific asset of the fund ( be it shares of stock, deposits, bonds etc, in which the fund is invested), only a proportionate share in all of the fund’s assets.

Value of a unit in the UITF

Your UITF unit is valued or given a peso PhP value using a NAVPU or net asset value per unit. Just like stock prices, NAVPUs change daily. It is computed by dividing the fund’s net asset value (NAV) by the number of outstanding units in the fund. The NAV is the sum of the market value of the investment of the fund less expenses such as taxes, fees and other charges.

Types of UITFs

(1) Fixed-income fund – is generally invested in government securities, bonds and other fixed income securities (money market instruments). These securities have generally lower risk but tend to give modest returns.

(2) Equity fund – is usually invested in equities or stocks.

(3) Balanced fund – is usually invested in a mix of Fixed-income securities and equities. It aims to balance the risk with higher returns.

UITFs versus mutual funds

UITFs have similar characteristics with mutual funds. The important difference is that shares in mutual funds make you a stockholder of the mutual fund company. As such, you have the power to attend stockholder meetings and vote on important company matters.  You are not entitled to dividends though.

On the other hand, holders of UITFs don’t have such rights.

Have you tried investing in UITFs?

xoxo,
20 something lawyer

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