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How to know if a UITF is worth your money

POSTED ON June 03, 2019

How do you know if a unit investment trust fund (UITF) is worth your money?  Look at how it does against the benchmark, or a point of comparison. For UITFs, the point of comparison is the change in value.

Here’s a quick explanation on whether your UITF is indeed worth your money.

First, look at how much your UITF has changed in value. If it’s positive, this means it has grown. If it’s negative, it has lowered in value.

A positive value, however, isn’t always a good thing. If you get +5% growth in your UITF value but everyone else gets 10%, you might want to reconsider. This is where a benchmark—our point of comparison--comes in handy.

Banks and investment companies use indexes as benchmarks. An index is a tool used to measure trends in the financial world. There are indexes for stocks, bonds, savings accounts, and even oil.

Indexes

The Philippine Stock Exchange Index (PSEi) shows the general trend of stocks. It does this by following the movement of the top 30 stocks traded on the stock market. Why these stocks only? If you look at the sales of the biggest car companies (your benchmark), you can get a good idea of overall car sales performance in general.

So, if you have UITF that is invested in stocks (this is called an equity fund), you can use the PSEi as a benchmark, again as a point of reference.

Let’s get into more details now. If your fund’s performance is higher than the PSEi, this is what investors call as  “beating the market.” This is a good sign that your investment is good. 

Note that some UITFs will use more than one index for benchmark if they have more than one kind of asset in them.  Given that explanation, a UITF with 60% stocks and 40% bonds would have a benchmark that’s 60% stock index and 40% bond index.

A benchmark is a useful tool for choosing an investment. However, it shouldn’t be the only basis for your decision. There are times when a UITF can do worse than its benchmark, then beat it after six months.

When it comes to investing, the most important thing to have in mind is that it should fit your goals and willingness to take risks.

So the next time you’re offered an investment opportunity, have a think and ask these questions.