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.

20. Swabeng Strategy: What UITF works best for me?

We know that not all UITFs are created equal. Some are made according to your risk appetite and some are made for how long will you hold the fund.

Regardless of which will you be choosing based on the criteria, what matters is that you understand the risk and reward for each before putting in your hard-earned money to have it work for you.

I will cite some of the most common types of UITF according to your Risk Appetite and Time Horizon.


1. Money Market Fund. 

This is a type of UITF that is invested on a short-term basis of usually one year or less. Your funds will be invested in a fixed-income securities . Usually, the return for this type of investment is relatively higher than time deposits and savings account.

This type is recommended if you prefer to preserve your capital and you. don't want to take much risk (for conservative investors) but at the same time you have your money grow within the shortest time possible. Opening a Money Market Fund account can be as low as a thousand pesos depending on the bank you'll be visiting. You could go here to this link for the list banks that offer Money Market Fund (please take note that the data on the link may vary from time to time).


2. Bond Fund

This is a type of UITF that is invested on a short to medium term. This time, your funds will be placed in Bond that you can withdraw after a period of as short as 30 days to as long as a year.

This type is recommended to people who wants to preserve their capital and at the same time doesn't mind the risk (say very low to low risk). You can open a Bond Fund account for as low as five thousand pesos depending on the bank you'll be going to.


3. Balanced Fund

Now this is where the excitement starts. This type is usually invested on a medium term to maximize the growth of your fund. They are usually invested in a combination of fixed-income securities like treasury bills and high yield savings account, bonds and even equities (Stock Market).

This type is recommended to those who won't be using their money for the next 3-5 years so that you would be able to utilize the power of compounding (I'll try to make a post regarding Compounding in the coming weeks).


4. Equity Fund

This would be the type of UITF that is heavily invested (almost 100%) in equities or stocks. Since the fund will be invested heavily on equities, risks for this type of fund are higher than the previous funds (hence this type is considered high-risk). With high-risks, as long as you've planned well, the rewards will be high also. This type of fund is suitable for aggressive, long-term investors who can sit and wait.

If you won't be using your money for the next 5-10 years, this would be the best type of fund for you especially if your goal for this fund is for your retirement or your kid's college education.


Regardless of what type of fund you choose, bottomline is, you have a chance to let your money work for you. You may check this website and you would be able to see the list of Banks that offer a specific type of fund that suits your personality.


Till the next post.

19. Swabeng Discussion: U.I.T.F.

One of the fix for our dilemma on how to grow your money is that you should place them in Unit Investment Trust Fund or what they usually called UITF.

Its like a deposit account but its not. Got my drift?

But what exactly is UITF?

Unit Investment Trust Fund (or UITF) is one form of investment that is available here in the Philippines. It is an open-ended pool of investment that is funded by various investors (you and me). The pooled trust fund is usually denominated in Pesos (the most common) followed by the US Dollar.

In this kind of investment, its the Professional Fund Managers who usually handles the fund. And when we speak of the amount, usually they handle Billions of Pesos which they study the investments thoroughly before investing. And while they are the ones who do the thinking and managing the fund, all you need to do is sit back and relax.

You would notice on various blog posts posting gains from their respective UITF Accounts, please remember the disclaimer that "Past performance doesn't guarantee future results". This means that the gains from your investment for this year is not and will never be the same for next year and for the succeeding years.

The basic requirements in opening a UITF depends on the Bank that you'll be going to (I guess I'll just share it on a different post).

You may also check this Website for more FAQs regarding UITF.

My next question to you is do you know what is the Best UITF Account for you? Stay tuned.