When you’re just starting your journey as an investor, Unit Investment Trust Funds (UITFs) can be a little hard to understand. However, before you put your money in one, you need to know what it is and what it could do for you and your financial goals.
These funds can be classified in different ways, depending on whether you’re looking at their class or their structure.
According to class
A money market fund is invested mostly in deposits and fixed-income securities, and has a modified portfolio duration of 1 year or less. It is also highly liquid, which means that your investment can quickly be converted into cash if you need to take some or all of it. Compared to other UITFs, a money market fund usually has a short time horizon.
As the name suggests, a bond fund invests mostly in a portfolio of fixed-income securities (bonds). It has a modified portfolio duration of more than 1 year, and the time horizon can vary across specific bond funds.
An equity fund invests mostly in equity securities (stocks). It has good potential for growing your money and earning dividends, but may experience more volatility than funds that focus on fixed-income securities.
A balanced fund invests in a diversified portfolio of bonds and stocks, with the fixed-income component making up 40% to 60% of the fund’s investments. It generally aims to provide capital appreciation over the long term.
According to structure
A fund of funds is a UITF that invests in other collective investment schemes (called the target funds) that are managed by another fund manager, instead of actively managing the fund. These can make investing in the target funds easier and more affordable, especially if these target funds are located in other countries.
If a fund invests in only one target fund, it is called a feeder fund.
A multi-class fund is a UITF with a single pool of assets but different participation classes. Investors can choose to invest in one or more of each class of this fund, and the fees, minimum investment amount and returns may vary across the classes.
In a unit paying fund, the investors’ money is invested in various income-generating securities. Then, on a specified schedule, this income is converted into equivalent units (unit income) and automatically redeemed according to the current NAVPU.
Investors will receive this income in their settlement accounts, without having to touch the money that they put in. Such funds have the potential for capital appreciation as well as the non-guaranteed income stream.