23. Swabeng Dilemma: UITF of MF

Now that I've share a little on both Unit Investment Trust Fund (UITF) and Mutual Funds (MF), which of these two would be better to invest in?


Mutual Funds?

OR

Unit Investment Trust Fund?


While the two may have some similarities, they do have their own differences.

Let us count the ways.


1. Types of funds and investments. 

Practically, both offer the same types of funds to their clients. Ranging from Money Market Fund, Bond Fund, Balanced Fund and Equity Fund. There would be some difference in the types of funds that one or the other offer like Dividend Funds, Dollar Funds, Index Funds and the like. Regardless of the list, there is once fund that I'm sure that is tailor-made for you.

For the list of mutual funds, you may check their official website here, while for the list of unit investment trust funds, you may check their official website here.


2. People who handles the funds. 

Seasoned professional fund managers are the ones who handles the funds. Speaking of which, they usually handle not just millions of pesos but billions of pesos. Which means they have to trade very meticulously to avoid possible losses.

Imagine the fund manager has 100 Million pesos and Risk of 2 to 3 percent, this means that the fund manager can only lose 2 to 3 million pesos. That's a huge amount for a retail investor like you and me.

The difference is that Mutual Funds are regulated by The Securities and Exchange Commission (SEC) while UITFs are regulated by The Bangko Sentral ng Pilipinas (BSP).


3. Procedures in opening an Account

Each Bank or Mutual Funds have their own specifics when it comes to how to open an account for them and how to top-up your account on a time basis. Just the same their respective sets of procedures will actually help you understand better regarding their type of fund you have chosen.

Definitely, their forms will be different but what needs to be filled-up like your name, address, contact number, email etc are the same across all forms.


4. Funding and Maintaining your account

All funds require a minimum amount to open (from as small as 5000 pesos) and a certain period of time for holding them (from as short as 30 days). Once you were able to fund your account initially, you may add-up accordingly (from as low as 1000 on most accounts) on a timely manner. When you feel that you were able to reach your targets, you may sell it at a profit.

The price of the fund are either expressed in Net Asset Value Per Share or NAVPS for Mutual Funds while for UITF, it is expressed in Net Asset Value per Unit.


5. Fees and Charges. 

Also remember that there are corresponding fees on this investment. But there are times that the longer you hold on to your investment, exit fees are usually waived. Annual fees usually is within the 1 to 2 percent of your portfolio as well as there are also sales fee.

While Mutual Funds are Tax-Exempt, UITF's comes with a 20% withholding tax on capital gains. At the same time, management fees are higher for Mutual Funds compared with UITFs.


For now, these are the comparison between a Mutual Fund and a Unit Investment Trust Fund. Let me know in the comment section if there are other similarities or differences between the two.

22. Swabeng Strategy: Types of Mutual Funds

I'm sure you have an idea how and where to invest in Mutual Funds according to your risk appetite and time horizon. If not, let me share them with you.


1. Money Market Funds

This type of fund is ideal for those who only intends to invest within a short period of time usually less than 1 year (Between 3 -12 months) and if you need the money with a year or less this fund is for you. This is usually better than keeping it in your savings account. This can be your alternative to your time deposit account since it give a higher interest (subject to risks).


2. Bond Funds

This type of fund is ideal for those who won't be using their money for the next 1 to 3 years. As the name implies,your funds will be mostly invested in Bonds and some cash. This fund is a little bit riskier than Money Market Funds but it still safe investing on this type.


3. Balanced Funds

This type of fund is ideal for those who won't be using their money for the next 3 to 5 years. Balanced funds are invested in a combination of Equities, Bonds, Money Market and keeps a little cash. Risk tolerance for this type is in between the conservative and the aggressive.


4. Equity Funds

This type is for investors who can take as much risk as they can knowing of its possible rewards when the time comes. Most of your funds will be invested in Equities (Mostly Bluechip Stocks or Strong Second-Liners) with a little cash. If you won't be using your money for at least 5 years or more, this type of fund is for you.


Regardless of what you'd choose, what matters more is what works for you.

Till the next post.

21. Swabeng Discussion: Mutual Funds

Aside from UITFs, there is another type of investment similar to UITF. Do you know what it is?

Its called Mutual Funds.

And what is Mutual Funds anyway?

By definition, A Mutual Fund is a Pool of funds by individuals, companies, corporations and other investors which are invested in different types of instruments. Usually this is handled by a professional fund manager. You and me can invest in a Mutual Fund for as low as a certain amount set by the fund itself.

Like UITFs, Billions of pesos are invested in this type of fund which is carefully studied by the fund manager for capital preservation and to earn more. Like UITFs, there is always a disclaimer that "past Performance doesn't guarantee future results" which simply means there are risks entailed for each type of fund.

You may also visit their official website for more information on Mutual Funds

On the next post, I'll share some of the types of Mutual Funds that you could choose from. I'm sure you already have an idea what are they.