There are two main challenges for first-time investors: having enough money to invest and learning how to do it. Unit Investment Trust Funds (UITFs) address both hurdles, making them ideal for beginners.
A UITF is an investment option where you can start with P1,000. Aside from being relatively affordable, UITFs have fund managers so you won’t have to do the research and decision-making yourself.
You may ask, how does a UITF work? Is it a good investment? In this guide, we answer these questions and more to give you the basics before you invest.
What are UITFs?
In a UITF, you’re putting money in a fund together with other investors. This makes you a part-owner of the fund, and how much you own is measured in units.
The fund manager chooses where to invest the pooled money to possibly grow it. If the fund grows, your profits will be calculated based on how many units you own.
Take a closer look at the definition of UITFs in this primer.
Types of UITFs
There are different ways to classify UITFs. Their features may differ based on what they invest in or how they are structured.
Watch this video to learn the different kinds:
Types of UITFs according to class
Below are the main assets that different types of UITFs invest in. Fund managers can also place money in other assets to manage risks.
| Types of UITF | What they invest in |
|
Balanced UITFs |
Government bonds, corporate bonds, and stocks |
|
Bond UITFs |
Government and corporate bonds |
|
Equity UITFs |
Stocks |
|
Money Market UITFs |
Time deposits and Treasury notes |
Check out the Key Information and Investment Disclosure Statement (KIIDS) to know the specific types of assets your chosen fund contains.
Types of UITFs according to structure
- Fund of funds
This is a UITF that invests in other collective investment schemes known as target funds. These UITFs can make it easier and more affordable to invest in target funds, especially if the target funds are located abroad.
- Feeder fund
A feeder fund is a UITF that invests in only one target fund.
- Multi-class fund
A multi-class fund has one pool of assets in different participation classes.
- Unit paying fund
In this structure, the fund manager puts investors’ money into assets that generate income. The income is then converted into equivalent units – called unit income – and is then automatically distributed to investors on a specific schedule.
Know more about the types of UITFs in this guide.
What are the benefits of investing in UITFs?
Now that you know the definition and types of UITFs, you may wonder what it means for you as an investor. Is it safe to invest in a UITF? What can happen to your money?
To find out, let’s look at the pros and cons.
| Advantages of UITFs | Disadvantages of UITFs |
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When considering UITFs, it’s important to know how much risk you’re comfortable taking. Each UITF is suited to a specific risk profile.
For example, conservative investors can consider Money Market UITFs while aggressive investors can look into equity UITFs.
How can you make money from UITFs?
The value of a UITF depends on the value of the investments inside. However, these investments don’t always behave the same way. Some may go up in value while others are down.
To know how much a UITF is worth at a given time, you should look at the Net Asset Value. This number factors in:
- The value of all assets inside the fund
- How much the value of each asset changed throughout the day
You can find out whether your investment has grown using the Net Asset Value Per Unit (NAVPU). All you need to do is multiply the NAVPU with how many units you own.
If the total is higher than the amount you’ve invested, then you’ve made a profit. To turn your paper profit into actual earnings, you need to redeem from your investment.
How to redeem from a UITF
You can withdraw some or all of your money from a UITF through the redemption process. Here’s how it works:
Step 1: Make a request for partial or full withdrawal. You can withdraw in either pesos or units.
Step 2: The fund manager will process your order. Take note of the cut-off time for processing. If you send a request after the cut-off, your withdrawal will be processed on the next banking day.
Step 3: After processing, your withdrawal will be credited to your settlement account. The settlement date may vary depending on the fund.
If you chose to withdraw based on units or pull your investment out in full, the money you’ll receive may not be the same as the amount you saw while making the request.
This is because the value of your investment is based on the NAVPU. The actual amount will differ if the NAVPU changes between the time you started the transaction and the time it was processed.
Learn more about the redemption process in this article.
How can you invest in UITFs?
UITFs are offered by banks approved by the Bangko Sentral ng Pilipinas (BSP). To invest in one, get in touch with your preferred bank and learn about their products and requirements.
Some banks offer UITFs through mobile apps to make investing more accessible. Take note of how much money you’ll need to invest and any additional fees before you apply.
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