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.
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.
ReplyDeleteCan you send a comparison between banks which offers the types of UITFs? Thank you.
ReplyDeleteHi Jerose. I'll try to grant your request one of these days. Thanks.
ReplyDeleteHi Jerome, very informative and well discussed UITF article. This would really be helpful to those aspiring finance people
ReplyDeleteThanks jester.
ReplyDeleteIm so happy to find this blog. Very helpful for someone like me who is just starting to invest.
ReplyDeleteHi, 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
ReplyDeleteHi 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.
ReplyDeleteHi. 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.
ReplyDeleteHi 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.
ReplyDeleteWhat is the best bank to invest in a money market fund? And do you also invest in properties/realty?
ReplyDeleteWhat is the best bank to invest in a money market fund?
ReplyDelete=In my opinion, BPI short term fund primarily because of convenience.
And do you also invest in properties/realty?
-I plan to.