InvestmentsFinancial LiteracyPersonal Finance

Are You Ready for UITFs or Mutual Funds?(3-min read)

Are mutual funds or unit investment trust funds for you?

If you’ve been asking this question to yourself, then ask further: Do you have excess funds from deposits that you want to put to a higher earning instrument, at a slightly higher risk? EXCESS all caps.

Mutual funds or UITFs (Unit Investment Trust Fund) are basically pooled investments from the public. The investment firm then invests these pooled money into bonds, stocks, foreign currencies, time deposits or combinations of these, which in general are called funds (i.e. basket of investments). Mutual funds are handled by investment companies whereas UITF are entrusted to banks (Trust departments of banks) then are handled by their own fund managers.

This will definitely earn you higher than your usual bank deposit. But chances of loss is also higher than your usual bank deposits. Higher risk, higher return (or loss). 

Risk and Return

UITF / Mutual funds carry higher risk than deposits but lower risk compared to equities. These funds are generally less volatile than single stocks. Consistent with risk involved, funds give you higher return than deposits but can be lower than the potential earnings from purely stocks. In between. 
How It Works
Say you have PHP10,000 for investment. You chose the balanced fund (usually mix of equities, bonds and high yield deposits) of Company A. Currently, the price of each unit of the mutual fund (aka net asset value per unit or NAVPU) is PHP1.2500. Your 10k can then buy 8,000 units of that fund. Say 3 months from now, the NAVPU is at PHP1.3750, then your investment value by then is PHP11k, or a PHP1k gain from 3 months ago (10% in 3 months! Mind you, this is not a scam!)
UITF and mutual funds allow you to avail of investment instruments that as an individual is likely too expensive. The last few bond offerings I heard require PHP1M or PHP100k minimum investment. With UITF, you can invest as low as PHP1,000 monthly (BDO Easy Investment Plan)  or PHP10,000 (BPI Mutual Funds) and still get to invest a portion of it in bonds. Since the investments are pooled, then customers need not worry about individually meeting the usual investment minimum. Or you get to enjoy the performance of lots of equities compared to how many you can buy as an individual trader. Almost all banks offer UITFs while investment companies offer mutual funds. Further, insurance companies also offer life insurance with portions invested in mutual funds. And of course, there are the investment firms.
If you invest in stocks on your own, there might be times when you are unable to monitor your portfolio as much as you want to. With deposits, the money just sleeps there. With UITF and mutual funds, full time dedicated fund managers take care, monitor and invest the funds on a daily basis. No need to monitor frequently, forget it for some time without worry of being neglected.
Deposits are more liquid and readily available (except time deposits and long term deposits). UITF and stocks more or less share the same liquidity, funds become available around 3 days from date of selling or pullout.
So what’s your verdict? Are you ready for slightly higher risk for a chance on higher earnings?
PS. No free advertisement or endorsement intended for the two banks mentioned above. Just saying I’m more familiar with their products. Leave it up to the readers to search for more (better) options.
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One thought on “Are You Ready for UITFs or Mutual Funds?(3-min read)

  1. Hi geri..
    Leo 26yo overseas..

    i was just reading ur taxi franchise blog and it really helped me decide.. thanks.. i also read ur beginers guide and insurance and here uitf..
    could u tell me more about the risk and return? can u please give an ex. of how much risk do i have to give if i invest in uitf?and also in VUL. Is there any risk in VUL?

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