Choose: Mutual Funds vs. UITFs
Mutual Funds and Unit Investment Trust Funds (UITFs) are both open-ended pooled funds managed by an expert fund manager. This means that your money together with the money of all other investors in the fund will be invested by the fund manager in a diversified portfolio of investments. Both types of investments have holding periods.
The fund manager will then invests it in four main types of funds named Money Market Fund, Bond Fund, Balanced Fund, and Equity Fund classified by the risk tolerance of the investor.
Money Market Funds are for investors who are very very conservative. These funds are invested solely in short-term investments and are very safe. It invests in short term fixed-income government and corporate instruments, certificates of time deposit, and the like. The risks associated with this fund are very minimal. This is the safest among the four main types of funds. But don’t expect it to be the one with the highest yield.
Bond Funds are for investors who are risk averse. This is the fund next to Money Market Fund in terms of conservativeness. It also invests in government and corporate fixed-income instruments but it’s both short-term and long-term. Risk factors associated with bond funds are the rise and fall of interest rates due to market conditions. There is an inverse relationship between bonds and interest rates. That is, if interest rates fall, bonds generally rise and vice versa. Why? It is because a bond offers a fixed interest rate. We can view the following example below.
A corporate bond is issued for Php100,000 for five years with a 3% coupon or interest rate, paid every 6 months. Let’s say that interest rates went up to 5%. If you want to sell this bond, who will buy it when it is paying just 3% as compared to the market interest rate of 5%? So if you want to sell it, you will then be forced to lower your selling price, the bond price.
Balanced Funds - This type of fund are for the medium risk taker investors. It invests in a basket of investments such as bonds, money market, and stocks. It is called balanced fund since the fund manager do some balancing act here when it comes to capital appreciation and conservatism against capital loss. When the stock market is battered, then he can adjust it and allocate it into the safer types of investments. Consequently, when stocks are doing good, then he can adjust it and allocate more into the risky stocks.
Equity Funds - This type of funds are for high risk taker investors. It is for investors who desire long-term capital appreciation since bulk of it was invested in stocks with a little portion invested in fixed-income. The risk associated here is connected with the movement of the stock market particularly with the changes in stock prices where the fund is invested. However, history shows that returns in stock market consistently outpace the effects of inflation with the average earning at least 10% per annum.
Both mutual funds and uitfs have these kinds of funds. Now we go to the differences to assess which between the two you prefer the most.
UITFs are the evolution of the Common Trust Funds offered by banks long ago and so these are bank products. Therefore, you can only avail these types of investments by going to a bank and are being regulated by the Central Bank. On the other hand, Mutual Funds are products offered by investment companies. And these products are regulated by the Securities and Exchange Commission.
Mutual Funds have entry and exit fees while UITFs does not have them. Entry fees are fees that will be deducted to your investments upon investing in the fund. This entry fees will then become the comission of the mutual fund agent. Exit fees are fees that will be deducted to your investments upon withdrawal of your investment. You can’t have both entry and exit fees. You have the option which one you prefer. Either you will be deducted instantly upon investment or you will be deducted upon withdrawal. Consult your mutual fund agent.
Mutual Funds are like corporations where each shareholder are the investors. The CEO and the President will then be the fund managers and directors of the fund where they get a per diem fees everytime they have a meeting. UITFs are just simply funds handled by the trust department of the bank acting as the fund manager.
Since you are a shareholder in a Mutual Fund, you have the power to nominate, elect or designate a fund manager depending on the number of shares you own. In UITFs, investors does not have this power.
In UITFS, you buy units and the value of each unit is called Net Asset Value Per Unit or “NAVPU”. In Mutual Funds, you buy shares and the value of each unit is called Net Asset Value Per Share or “NAVPS.”
As a shareholder in Mutual Funds, you get to receive dividends commonly in the form of stock dividends or additional shares credited to your account on an annual basis. In UITFs, you don’t have this.
So are you decided which one to choose? Mutual Funds or UITFs? They are almost similar but they have differences. For further information and for comparison of historical yields, please visit:
Investment Company of the Philippines for Mutual Funds and
Trust Officers Association of the Philippines for UITFs
Here are some considerations to help you decide:
- Minimum capital needed to invest in the fund
- Holding period of the fund
- Historical yield of the fund
- Fund Manager or directors of the fund (the company or bank handling the investment)
Good luck in your investments!
As a starter, you might want to view my article on how to invest in mutual funds.
To get articles, you can subscribe using your favorite RSS feed reader or have them delivered directly to your email address.
Bookmark This Page:
What To Read Next
Search for more:
November 30th, 2008 at 8:16 am
[Reply]
December 1st, 2008 at 8:25 am
[Reply]
December 1st, 2008 at 8:28 pm
wow! you’re an inspiration to me too… a really good information in continuing
our journey to be succesful and wealthy …
kaya update mo ko lagi dude, thanks
[Reply]
December 1st, 2008 at 8:31 pm
[Reply]
May 14th, 2009 at 11:31 pm
Do you know the minimum amount banks or other investment company’s require for an Equity Bond?
[Reply]
May 14th, 2009 at 11:47 pm
For UITFs of banks, you can go to http://www.uitf.com.ph and choose the bank you prefer. After that choose the “fund profile” and all the details of the fund can be found there including the minimum amount of participation.
-
For mutual funds of investment companies, it can be as low as P10K only. You can go to http://www.icap.com.ph, go to “mutual funds 101″ at the right, and “facts and figures” on top. There is a list of all mutual fund companies there. Choose the investment company that you want and you can inquire directly from them or visit their website directly. I hope this helps.
[Reply]
September 6th, 2009 at 7:11 am
your blog entires are amazing for those who want to improve their financial situation…
I actually liked your articles about mutual funds…they’re very informative
hope you can posts more about mutual funds. I’m very interested in mutual funds..
I’d like to ask how was your experience with mutual funds? was it positive? Or did you experience setbacks ? hope you can reply to my questions… thanks!
[Reply]
Tyrone Reply:
September 6th, 2009 at 7:47 am
First of all thanks. In my case, I am more invested with UITFs than mutual funds. I just have my mutual fund invested with Sun Life (Equity Fund) with a minimum amount. I prefer UITFs more because they don’t have entry or exit fees as discussed above. But UITFs don’t give dividends.
With my mutual fund investment with Sun Life, they are very professional. They have quarterly mails to you reflecting how much the value of your investment (just in case you don’t check it online). Added to that, they deliver an annual report which is in glossy type to all of their mutual fund investors. They also allow up to 4 free transfer from one type of fund to another (i.e. transfer from Bond Fund to Equity Fund which I did before).
With my UITFs, I invested aggressively before. The first time was a bond fund that earned me around 4% in 6 months. After redemption, I invested again into a riskier balanced fund. Since the stocks are rising before (2006), I got huge earnings of 17% in 6 months. Because of that earning, I got more excited and invested into a riskier equity fund.
Now, because of the global financial crisis, I am experiencing losses. I bought some of my remaining UITF investments at a high price when the Philippine Stock Index was at 3,000 points level (I am invested in an Equity Fund).
Nevertheless, I am holding on into it.
Just in case you have further questions, feel free to post your comments here.
P.S. I edited my post above and placed a link on how to invest in mutual funds.
[Reply]
January 2nd, 2010 at 11:37 am
[Reply]
February 13th, 2010 at 2:34 pm
[Reply]
February 22nd, 2010 at 8:29 pm
I’ll be planning to invest in UITF probably this coming April 2010 I checked the BDO Peso Balance fund NAVpU it seems that its rebounding now after the financial crisis. Would it be possible for the UITF to monitor the status of you investment online and also to automatically transfer lets say from blanace fund to equity fund?
[Reply]
Tyrone Reply:
February 22nd, 2010 at 8:34 pm
Unfortunately, you cannot do automatic transfer from one fund to another in UITF. However, you can withdraw your money from one fund and reinvest it into another fund within the same bank provided you meet the initial minimum requirements of the fund you’re trasferring into.
[Reply]