The Different Kinds of UITFs and How to Choose the Best UITF For You





There are several kinds of UITFs available. In this post, I will be introducing the different kinds of UITFs available in the market these days. Basically, we can classify them based on what instruments they invest in.

Stock or Equity UITFs. These UITFs invest in stocks. Some examples are the BDO Equity Fund, BPI Equity Value Fund, and the RCBC Equity Fund. Stock or Equity UITFs are high risk and very volatile. In 2008, the Union Bank large Cap Philippine Equity Fund lost about 45% but gained 85% the following year. Ideally, those who will invest in Stock or Equity UITFs should not touch their investment for at least 10 years. This will give the UITF time to recover from losses. This kind of UITF is best for people investing for their retirement.

Bond UITFs. These UITFs invest in bonds. Bonds are essentially loans. When someone buys a bond, they are lending money to a government, or a company. In exchange for that money, the government or the company will pay a certain interest rate and repay the principal of the loaned amount upon maturity. Some examples are the BDO Peso Bond Fund, UCPB Peso Bond Fund, and the BPI Premium Bond Fund. Bond UITFs are medium risk and not as volatile as stocks. The ABF Philippines Bond Index Fund in 2008 lost 0.30% and gained 7% the following year. I hope this gives you an idea about the difference between the returns on stock and bond UITFs. Bond UITFs are ideal for investors who can afford not to sell their UITF shares for more than 5 years. This kind of UITF is best for those trying to save for something big like a car or a house and expect to purchase it after 5 years. I myself keep money in bond UITFs for when I decide to go back to school or travel the world.

READ: 12 Tips on How to Save Money

Balanced UITFs. As the name suggests, these UITFs invest half of its money in bonds and the other half on stocks. An example is the Metro Capital Growth Fund of Metro Bank and the BPI’s Balanced Fund. To give you an idea, in 2008 BPI’s Balanced Fund lost almost 27% but managed to gain 20%. To be honest, I really don’t see the point of balanced UITFs. If you wish to have a balanced portfolio, why don’t you just invest 50% of your money in bond UITFs and the other 50% in Stock or Equity UITFs, it would be the same thing as purchasing Balanced UITF shares. Balanced UITFs are best for people who like the safe refuge that bonds provide and the big potential gains from stocks.

Money Market UITFs. These UITFs invest in the money market. The money market deals with short term loans. A good example of money market securities are the special deposit accounts of the Banko Sentral ng Pilipinas. Some examples of Money Market UITFs are the BPI Short Term Fund and the SB Secure Peso Fund of Security Bank. In 2008, the BPI Short Term Fund went up more than 3%, it again went up more than 3% in 2009. This shows you how safe this kind of UITF is. Money Market UITFs are best for storing funds that you will need within the next few years or your emergency funds. Make sure though that the Money Market UITF that you’ll be investing in does not penalize you for too-soon withdrawals if you will keep your emergency funds in it.

When you open a UITF account with any bank, you will be asked to take an assessment test which will gauge your attitude towards risk and you will be told as to which type of UITF best suits your personality. If you choose to invest in a UITF other than what was recommended to you, you will be asked to sign a waiver.

I’m sure that at this point you have already realized that risk is directly proportional with returns. The higher the risks, the higher the potential rewards are.

To know which UITF is the best UITF for you,  you simply have  to know what your goal is in investing and how long you can afford not to touch your UITF investments. After choosing the best UITF for you, the next thing to do is compare the banks which offer them, this is the topic for my next post.

If you have any questions regarding how UITFs work, please feel free to send me an email.


12 comments:

Jerose Blanco said...

Hi! I like the topics regarding different types of UITFs you posted. Can you send me the comparison between banks that offer UITF? Thank you.

Jerose Blanco said...

Can you send a comparison between banks which offers the types of UITFs? Thank you.

Jerome C Herrera said...

Hi Jerose. I'll try to grant your request one of these days. Thanks.

Jester said...

Hi Jerome, very informative and well discussed UITF article. This would really be helpful to those aspiring finance people

Jerome C Herrera said...

Thanks jester.

Anonymous said...

Im so happy to find this blog. Very helpful for someone like me who is just starting to invest.

Vlan said...

Hi, tanong ko lang kung anong oras nalalaman ung NAVPU at the end of the day? Anong time po ba nagoopen at closing ng market?? Salamat

Jerome C Herrera said...

Hi Vlan. The Philippine stock market opens at 9:30 AM and closes 3:30 PM. The time that the NAVPU is released depends on the bank and the type of UITF. But it's normally late afternoon.

gerly ann enriquez said...

Hi. I am not sure if you are familiar with FAMILY PROVIDER OF PHILAMLIFE? It's a UITF that comes with life insurance coverage but I wonder if this INSURANCE COVERAGE has limitations? for example a cancer patient na nag open ng family provider account.

Jerome C Herrera said...

Hi Gerly. That is actually a VUL and not a UITF with insurance. With regards to your question, this is actually ruled by the insurance code not by the company. As long as you didn't lie on your application, you will get the life insurance benefit. If you lied and didn't mention the cancer then you will only get the premium back if the insured dies within 2 years. If the insured dies after 2 years, you will get the life insurance benefit.

Anonymous said...

What is the best bank to invest in a money market fund? And do you also invest in properties/realty?

Jerome C Herrera said...

What is the best bank to invest in a money market fund?

=In my opinion, BPI short term fund primarily because of convenience.

And do you also invest in properties/realty?

-I plan to.