What are UITFs?
POSTED ON April 29, 2019
UITF stands for Unit Investment Trust Fund.
Bonds and time deposits are investments that require you to put in up to P100,000. UITF is a type of investment where you can start for as low as P5,000.
But what exactly are UITFs? Let’s break down what this means:
What is a fund?
What if you could get a group of other people who want to invest but don’t have the money to meet the minimum? By pooling your money, you’d be able to invest together.
This is the idea behind funds. A fund manager gathers money from multiple investors and puts it in the investments of their choice.
Where they put the money in depends on what the investors want. This is how UITFs can be classified. It all depends on what assets the money is invested in.
- Money market UITFs contain time deposits and treasury notes.
- Bond UITFs contain government bonds and corporate bonds.
- Equity UITFs contain stocks.
- Balanced UITFs contain government bonds, corporate bonds, and stocks.
Here's a short video that explains the different funds and for what kind of risk profile they are suited.
When a lot of people are investing together, those who put in more money are entitled to more profits. Sounds fair, right?
The value of a fund changes based on how much the investments inside it are worth. Some investors will also put money in the fund later on which complicates calculations.
This is where units come in. To make everything simpler, everyone who put money in the fund gets units to represent how much of the fund is yours. The value of the fund changes though. So in effect, the value of each unit changes too. This what you call the Net Asset Value Per Unit or NAVPU. (See: What is NAVPU?)
Any investment is an act of trust. You worked hard for your money so you should only entrust it to institutions that have built up a history of security and responsibility. This is why, for banks to offer UITFs, they must first be approved by the Bangko Sentral ng Pilipinas.
UITFs, in summary, make investing more accessible. They have lower minimum requirements and they let you put your money in different kinds of investments.