They say the best way to grow your money is through investment. But how do you do that, exactly? How would you know where to invest your money?

For some, the world of investments can be too complicated. The markets are hard to understand. The terminologies sound like foreign words to anyone who’s not an expert in stocks, bonds, securities, and whatnot.

But this doesn’t mean you shouldn't. If you want to earn passive income from your savings but have little to no knowledge of how the markets work, then UITFs could be just for you.

What is a UITF?

UITF stands for Unit Investment Trust Fund. It is a joint fund pooled from a group of investors. It acts as a trust fund in that the investors are the trustors while the bank or financial institution serves as the group fund's trustee. As a trustee, the bank manages the fund on behalf of all investors.

So why invest in UITFs? They are ideal for investment newbies since the bank responsible for holding and managing the fund does the analyzing and strategizing for you. You get to put your money in securities, bonds, or stocks without worrying about how it works.

But how do UITFs work?

UITFs are like fine dining experiences orchestrated by skilled chefs – in this case, experienced fund managers. These experts carefully craft investment portfolios akin to a chef creating a gourmet dish from various ingredients. Just as you trust a chef to deliver a delicious meal based on your preferences, investors entrust their money to fund managers who use their expertise to select the right mix of assets, whether money market funds, bonds, or stocks.

While you may not see the kitchen's inner workings, you expect a satisfying outcome that aligns with your investment goals. Ultimately, UITFs offer investors the opportunity to enjoy the fruits of their labor while leaving the investment decisions to capable hands.

How do you earn from UITFs?

Investors putting their money in the same UITF are like customers ordering the same dish. The fund managers will invest the pooled money in the same places using the same tactics because other investors have similar goals.

If the pooled fund generates income, the investors can get their piece of the pie based on how big their “share” is. In the case of UITFs, an investor’s share is their “unit” of investment.

How to compute UITF earnings

In investing, understanding how your money grows in a UITF is crucial. Let's use another metaphor. Picture it like a pie – the bigger the pie, the more you earn. The size of your slice depends on two key factors: the number of units you own and the fund's Net Asset Value (NAV).

When the market performs well and the fund managers make savvy moves, the fund's overall value, or its NAV, spikes. This means your slice of the pie gets bigger.

To calculate your earnings, you use the NAVPU (Net Asset Value per Unit), which is like the price of each slice. For example, you invested Php 5,000 in a UITF with a NAVPU of Php 100. That means you own 50 units. Now, if the NAVPU rises to Php 120, your earnings increase too. You multiply the new NAVPU by the number of units you own to see how much your slice of the pie has grown.

Initial investment:

Investment with earnings:

Earnings after profit: Php 1,000

How do mutual funds differ from UITFs?

You may be familiar with mutual funds and wonder how they differ from UITFs. Both are pooled funds managed by professionals, but they have distinct features.

Banks typically offer and manage UITFs, while insurance companies and investment firms commonly handle mutual funds. This difference in management places UITFs under the oversight of the Bangko Sentral ng Pilipinas (BSP) and mutual funds under the regulation of the Securities and Exchange Commission (SEC).

UITFs are essentially bank products. They are well-suited for individuals looking to grow their bank savings through investment opportunities.

Types of UITFs

There are different types of UITFs for investors, depending on their risk profile.

1. Money market funds
   This is the most basic type of UITF and is meant primarily for investors with conservative to moderate risk appetites. This type of fund invests in bank deposits and fixed income securities, like bonds or notes issued by the government or private companies with maturity of not more than three years and has a weighted average portfolio life of one year or less. Ideal for people who need regular cash flow and are looking for potentially higher return than regular savings accounts.
   
   
2. Fixed income funds
   Fixed income funds invest primarily in bonds which are like loans you give to institutions like the government or private companies. When you buy a bond, you essentially lend money in exchange for regular interest payments and the promise to get your initial investment back upon the bond's maturity. Fixed income type of UITFs invests in fixed income instruments with a weighted average portfolio life of more than one year.
   
   This type of fund is suited for investors with a moderate risk profile.
   
   
3. Multi-asset funds
   Multi-asset type UITFs consist of a mixture of financial instruments like fixed income securities and equities in the stock market. Multi-asset funds are for investors who are looking for a fund strategy that aims for both capital appreciation and steady income stream.
   
   
4. Equity funds
   These are funds that are substantially invested in equities, which are relatively volatile compared to money market placements and fixed income instruments. Equity funds are for investors with an aggressive risk appetite; meaning, they are willing to accept the higher risks involved in the stock market in exchange for the potential of higher gains.
   
   
5. Other Fund Structures
   Aside from the type of UITFs described above, there are also other structures like Feeder Funds, Fund-of-funds, Multi-class funds and Distributing funds.
   
   A Feeder Fund is a type of UITF that invests at least 90% of the fund’s assets in a single target fund1, managed by a local or foreign fund manager.
   
   On the other hand, a Fund-of-fund is a type of UITF that also invests at least 90% of the fund’s assets but in more than one target fund¹.
   
   Multi-class fund is another UITF type that has more than one class of units in the fund and is invested in the same pool of securities that has the same portfolio, investment objectives and policies.
   
   A Distributing fund is a type of UITF that distributes its income as unit income.
   
   

¹ A target fund refers to a local or foreign collective investment scheme in which the UITF invests all or a portion of its assets. A collective investment scheme refers to an investment vehicle where funds are solicited from investors for collective investment, and which are managed for the account of such investors. Examples of these are mutual funds, ETFs, etc.

 

Are UITFs safe?

Yes, they generally are. Typically, the banks that offer them are large commercial banks, meaning they are stable and run by some of the best financial experts in the country.

In addition, banks are under the supervision of the Bangko Sentral ng Pilipinas. They undergo regular audits to ensure that products and services offered to clients, including the UITFs, follow the regulations governing them.

But unlike savings accounts, the money you put in UITFs is not guaranteed or insured by the Philippine Deposit Insurance Corporation (PDIC). UITFs can give potentially higher returns than a savings account, but they also come with risks. 

Ultimately, it all boils down to weighing the pros and cons, understanding the plan rules, making your own risk assessment, and when necessary, seeking independent/professional opinion before making an investment.

Pros

• Achieve potential for higher returns
• Access to a diverse set of investment options
• Affordable – you can invest as low as Php 5,000 or USD500
• Invest like a pro – financial experts do all the strategizing for you
• In case you suddenly need cash, redemption proceeds from your UITF are available on the same banking day or up to a maximum of three banking days from when you notify.
  
  

Cons

• UITF is a trust product and not a deposit account and is not insured by the PDIC.
• Your return on investment varies and cannot be guaranteed. Historical performance is never a guarantee of future returns.
• When you redeem units in a UITF, they might be worth more or less than what you initially subscribed for because the securities in the UITF are regularly valued based on market prices and can be affected by market changes.
  
  

How to invest in UITFs 

Are you ready to invest in UITFs? Just follow these steps.

• Choose your preferred bank
• Apply for a UITF account in their nearest branch or online. Some banks allow you to do this on their digital platforms.
• Choose your preferred UITF variant
• Gauge your own risk appetite and investment goals through the bank’s Client Sustainability Assessment (CSA)
• If your CSA result matches your preferred UITF, then you can proceed. If not, choose another UITF that matches your risk profile
• Indicate Decide the amount you want to invest
  
  

Factors to consider when investing

• Your risk tolerance
• Your investment goals
• Importance of liquidity in your funds
  
  

Once you've carefully assessed all these factors, you can choose the right UITF for you. For a complete overview of the different UITFs you can choose from, check out Chinabank’s UITFs. Take a quick glimpse of the many options available – from conservative and moderate to aggressive – and find out what’s best for you.

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