A Layman’s Guide to Investing in UITFs in the Philippines

Saving money is not enough. This is true in most respects for today’s economy. With our dreams of financial freedom, the effects of rapid inflation would diminish the worth of our money stash long before we know it.

 

We cannot blame the government or other people on how little we receive. Instead, we should ask ourselves what value we can contribute to society to get higher pay?

 

In a free economy, we are paid with the value of our services rendered.

 

The same way we pay for a typical fast food meal at around P50 – P150 because it is accepted by most buyers to be at that price, not the other way around.

 

We should learn new skills, either for extra income, businesses or investments. But with time constraints, what can you do now?

 

Unit Investment Trust Funds can be a start

 
Unit Investment Trust Funds can be a start A Laymans Guide to Investing in UITFs in the Philippines

Image Credit: Shutterstock

 

This may not necessarily lead you to financial freedom. But then, it can be a stepping-stone for this elusive dream.

 

Unit Investment Trust Funds (UITF) are open-ended pooled trust funds managed by a trust entity. Basically, these pooled funds are invested in behalf of the trustee by experts. In return, allowing the trustee to enjoy gains (and losses) over time.

 

It is similar to Mutual Funds. The only difference is that UITFs are offered by banks, and Mutual Funds are offered by Mutual Fund Agents.

 

Mutual Funds tend to have higher fees also. But, Mutual Fund gains are tax-free as compared to UITFs that have a 20% withholding tax.

 

But then, we should not compare Mutual Funds vs. UITFs in general. We should compare them on the specific bottom line on a fund vs. fund basis.

 

To sum, this is good for people with no background knowledge or with no time to study trading. (But this is not an excuse to forego learning other money-making skills. It is hard to create financial freedom on this alone).

 

You can use this investment vehicle to park your money for higher returns as compared to just bank deposits.

 

But how do you choose which one to invest on?

 

Know Thyself: What Type of Investor Are You?

 

All individuals have different risk appetites and financial goals. One cannot simply dictate what investments are good for a specific person.

 

To start off, you should know what kind of investor type you are. This will enable you to match your needs with your risk tolerance.

 

Conservative

  Conservative A Laymans Guide to Investing in UITFs in the Philippines  

Are you a conservative investor?

 

Then UITFS pegged on Money Markets and Bonds are great for you. This investment rarely moves abruptly because usually they are invested in government treasury bills and low-risk bonds.

 

Do not expect a large sum from this investment though. But generally, it’s still greater than relying on the interest of your savings account.

 

If you want a slow but continuously growing and almost risk-free investment, this might be for you.

 

Aggressive

 
Aggressive A Laymans Guide to Investing in UITFs in the Philippines

Image Credit: Shutterstock

 

Are you an aggressive investor? Do you like big gains over time but willing to experience possible big losses?

 

Then an Equity Fund UITF might be for you. These are funds invested in the Philippine Stock Exchange (PSE).

 

This has the biggest market fluctuations because the stock market is volatile. It can easily be swayed by domestic and international news. But then, some may argue that a long-term view on this investment can ultimately lead to a gain.

 

If you don’t need the money anytime soon, this might be the option for you.

 

Moderate

  Moderate A Laymans Guide to Investing in UITFs in the Philippines  

Are you somewhere in between?

 

Then a Balanced Fund UITF might be a match for you.

 

Basically, it aims to “balance” your portfolio with a maximum of 40%-60% of the fund invested in stocks. And the rest to be invested in fixed income securities similar to the ones in a Money Market or Bond Fund UITF.

 

This allows you the potential high returns of the stock market while being grounded by the safety of fixed income securities.

 

This fund can let you experience a “balance” of both worlds.

 

Now, what is the Best UITF for me?

 

After knowing your risk profile, you now have to compare which of the funds under your preference is best to pick. This can be done by assessing the historical performance of the UITF.

 

Although, you must remember that the past performance of the fund is JUST AN INDICATOR of future performance. It does not guarantee same rates of return in the future.

 

With that being said, how can we compare funds? Now, we define terms that are relevant to our comparison.

 

Net Asset Value per Unit (NAVPU)

 
Net Asset Value per Unit NAVPU A Laymans Guide to Investing in UITFs in the Philippines

Image Credit: Shutterstock

 

When you buy an investment in UITFs, you are given a “unit equivalent” of your investment. The cost per unit is called the “Net Asset Value per UNIT” or simply the NAVPU.

 

Obviously, it is important because an increase in your NAVPU means an increase in your investment.

 

Luckily, all UITFS have their NAVPUs published on a daily basis.

 

Return on Investment (ROI)

 
Return on Investment ROI A Laymans Guide to Investing in UITFs in the Philippines

Image Credit: iStock

 

This value means the rate on which the fund has profited already. Two kinds of ROI are relevant for our analysis, ROI-Year Over Year (ROI-YOY) and ROI-Year to Date (ROI-YTD).

 

ROI-YOY is the percent increase of the fund from the date today to the same date last year. For example, the ROI-YOY for August 18, 2017 is the percentage increase of the NAVPU today as compared to the NAVPU on August 18, 2016.

 

Basically, this is the annual percent increase in the fund as of today. It is good in comparing other investment options like Savings Accounts because the rates published are usually annualized.

 

On the other hand, ROI-YTD is the percentage increase of the fund from year-end last year as compared to today. For example, the ROI-YTD for August 18, 2017 is the percentage increase of the NAVPU today as compared to the NAVPU on Dec 31, 2016.

 

This ROI-YTD is good in assessing how much the fund has earned starting this year to current date.

 

Simply put, the higher the ROI is, the higher the chances that it will succeed. Not assured though, but at least it indicates towards that direction.

 

What’s good is that uitf.com.ph provides all this information for all the UITFs today in the Philippines.

 

What if I can’t afford it yet? You can open a PERA Account for your Retirement.

  What if I cant afford it yet  You can open a PERA Account for your Retirement A Laymans Guide to Investing in UITFs in the Philippines  

The investment for a UITF generally starts at P10,000 with a minimum holding period of 30 days. Not everyone can afford the start-up cost.

 

But today, Republic Act 9505 or the Personal Equity Retirement Account (PERA) Law allows all income earners with a PH Tax Identification Number to invest for their retirement.

 

Investments can be as low as P1,000 per month (and a Maximum Yearly Investment to the Account amounting to P100,000 and P200,000 for OFWs).

 

You must note that this is a voluntary investment scheme that is tax-free. You are not obliged to deduct a portion of your salary to contribute to your fund.

 

Also, you can enjoy 5% tax credit (5% of your deposited amount) against your tax liability for the year. This account is also not subject to estate tax.

 

As long as you don’t withdraw until you are 55 years old (with a completion of 5 yearly contributions), you can still enjoy this tax breaks.

 

If in case you did before 55, you will only be penalized by the 5% tax credit you availed and a flat rate of 20% of the total income earned by the account.

 

Currently, we only have two banks that are accredited by BSP to hold PERA accounts. Check BDO or BPI for more information.

 

What if I just want to invest? (Not Necessarily for Retirement.)

 

Even with a tight budget, some banks offer ways for the public to invest. For example, BDO has an Easy Investment Plan that gives access to UITFs for as low as P1,000 per month.

 

You opt to invest a fixed amount per month to the investment plan. And they are invested in the UITF of your choice.

 

Conclusion

 

With today’s financial market, you need financial literacy to succeed. There is no such thing as a one investment holy grail for everyone. It would depend on your financial needs and risk profile.

 

For what it’s worth, this investment plans might not be your one-way ticket to financial freedom. But for sure, it might be a good start.

Leandro Eclipse

Leandro Eclipse is an entrepreneur who loves to travel. He believes in garnering multiple Location-Independent Sources of Income. Because if you are going to work anyway, might as well do it while exploring the world. Self-proclaimed foodie and tech geek. Follow him on Twitter @MikoTheEclipse.

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