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Ultimate Guide to Mutual Funds and UITFs Investing

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Understanding UITFs and Mutual Funds

Investing is not only for the rich but also for those looking for their next big purchase or just starting. Regardless of the uncertainty that surrounds the market, it remains the best way to accrue wealth. It is not enough that you are willing to invest, but you must be willing to let the money do the work for you. This can be achieved by using investment methods that best fit your lifestyle. One of these methods is investing your money in Mutual funds and/or UITFs.

Growing investors with no time for actual stock trading often opt for pooled investment funds as their investment. The reason for this is that pooled funds allow one to get chips in the game while avoiding the tedious work of monitoring and research.

In the Philippines, Mutual Funds and UITFs are the most common pooled funds. Understanding the difference between the two is essential and will help you decide if you benefit or lose from the investment.

Mutual Funds

mutual fund is like crowdfunding

A Mutual Fund is a firm that accumulates money from diverse stakeholders and then allots them in a range of investment options like bonds, stocks, and money market instruments, among others.

Owning stocks allows you to buy shares in a company directly, but as a mutual fund investor, you pick portions of stocks bought from different companies.  This means that you don’t directly own the shares of the company, but rather, you own shares within the Mutual Fund itself.

Also, different from stocks, investors don’t make any investment decisions. The Mutual Funds employ fund supervisors who control the funds on behalf of the investors. They will evaluate the market and choose the investment options to dive into.

Mutual Funds come in Four Types:

  1. Money Market Funds

This type of Mutual Fund invests in short-term debt securities like corporate bonds and time deposits. Money Market Funds are considered to be the safest Mutual Find, but they generate the lowest amount of returns.

  1. Bond Funds

This is a combination of Fixed-income investments like government securities, treasury notes, and commercial papers.

Investors who choose this type of Mutual Fund are in it for the lower volatility but still, provide the potential for capital development and protecting their capital against inflation.

  1. Stock/Equity Funds
UITFs and Mutual Funds

Stock/Equity Funds are considered to have the highest risk but have the potential for high returns in the long term. This is because it invests in Equities and Stock.

  1. Balanced Funds

Balanced Funds feature a combination of bonds, stocks, and/or money markets. This fund is an ideal choice for investors seeking moderate risk.

UITFs

UITF- Unit Investment Trust Fund, works on a principle that is quite similar to Mutual Funds. The only difference is that your money is managed by a bank instead of a Mutual Fund Company.

UITFs is managed by bank

Another difference is that in Mutual Funds, you are a shareholder since you own shares, but in UITF, you are an investor since you own units.

The price of each Mutual Fund share is known as NAVPS (Net Asset Value Per Share), while that of UITF is known as Net Asset Value Per Unit (NAVPU). For instance, if the NAVPU of a particular UITF is P3.00, and you have P30,000 to invest, you will own 10,000 units.

In UITF, the banks present you with a certificate that proves the number of units you own.

The UITFs are categorized the same as MFs—Equity, Bonds, Balanced, and Money Market. Just like the MFs, the allocation of assets is based on the risk-preference of the investor.

Why Invest in Mutual Funds and UITFs?

There are several reasons why you may want to consider investing in Mutual Funds and UITFs. Here are some of them.

Professional Fund Management

Both Mutual Funds and UITFs employ account supervisors who handle the allocation of your funds. This eliminates guesswork on your end, unlike investing in stock where you have to decide which stocks to pick. 

Bette Returns for Money

Compared to bank savings, your money has a better growth potential when you invest in UITF or Mutual Fund.

Diversification

Your money will be spread across a wide variety of bonds, stocks, money markets, securities, and other funds. This makes it much safer in principle compared to investing in stock marketing.

Liquidity

Both Mutual Funds and UITFs offer a simple way to redeem your investment if you want to.

Low Initial Investment Costs

You can open a UITF or MF account with as little as Php 5,000. You can increase your investments with as little as Php 1,000 per month.

Compound Interest

The longer your money is invested in such investment options like UITF or Mutual Fund, the higher the potential interest it earns.

Easy to Register and Manage

Opening a UITF or Mutual Fund account is easy. You only need to visit your nearest bank if you are interested in UITF investment or Mutual Fund Company to submit the requirements and make the initial deposit. When it comes to managing your account, the only thing you need to do is keep depositing more funds as the fund manager is in charge of investing.

mutual fund is entrusting your money

Differences between Mutual Funds and UITFs

Minimum Investment

Mutual Fund:  the minimum amount you can invest is P 5,000. However, there are some MF that have different minimum amount requirement.

UITF: the minimum amount for UITF like Balanced Fund and Equity Fund is usually P 10,000. For other UITFs, the minimum amount is P 100,000.

Holding Period

Mutual Fund: the majority of MF have a minimum of 6 months holding period except for a few that have a 30-day holding period.

UITF: the majority of UITFs have a 30-day minimum holding period, and some have 45-days.

Regulatory Body

Mutual Funds are regulated by the Securities and Exchange Commission (SEC), while the UITFs are regulated by Bangko Sentral ng Pilipinas (BSP).

Price of Funds

Mutual Fund has some entry fees of around 0.5% to 5%. There are also some management fees.

UITF does not require any entry fee but has a trust fee that ranges from 0.5% to 1.0% per year. If you redeem your fund before the holding period, you are subject to a redemption fee

With Mutual Funds and UITFs, you can make your money work for you. There is no need for you to track the market daily since there is an expert for that work. It is time for you to start investing since you have learned a few basics about Mutual Fund and UITFs.

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