Many Filipinos are relatively conservative when it comes to investing. After all, when you have your family and your future to think of, a high-risk high-reward investment doesn’t seem like a very good idea for someone trying to build their own nest egg.
But what many may not know is that there are various types of investment instruments that, although aren’t a hundred percent guaranteed, have historical evidence of being a financially wise investment. One such investment is the Unit Investment Trust Fund (UITF), which provides passive income for even just a relatively small capital.
For first-time investors, here’s what you need to know.
What is a Unit Investment Trust Fund?
In a UITF, professional fund managers from banks and trust corporations pool funds from multiple investors like you, who are looking for smart investments. Once these investment funds are pooled, they are then managed by investing your money through different investment instruments available in the market.
In the Philippines, all UITFs are managed by trust entities via banks and corporations licensed by the Bangko Sentral ng Pilipinas (BSP). These are then regulated by the Bangko Sentral ng Pilipinas.
As this is a form of passive income, you don’t get to decide where the fund managers invest your money. Using their experience, they will use your money to invest in instruments that they think will provide the best returns, including (but not limited to):
- Cash instruments
- Fixed income/bonds
- Stocks or Equities
Your UITF earns through dividends, stock price increases, or interests. UITFs have a lower barrier to entry, which makes it more attractive if you’re keen on investing.
Do I receive all the earnings?
UITFs are subject to two deductions: taxes and management fees. In the Philippines, UITFs are subject to withholding taxes like other forms of investments. Management fees, on the other hand, is a percentage of your investment that goes to the bank that handled your investments for you. These are usually already charged against the fund and incorporated in the NAVPU or the price of each fund. In spite of these fees and deductions however, many UITFs in the Philippines have proven to beat inflation rates for over a decade.
What’s the risk of UITFs?
Like all types of investments, UITFs have some amount of risk. Earnings from UITFs are not a hundred percent guaranteed and there is a possibility that your investment can result in a loss.
UITFs offer investors a great opportunity to earn higher potential returns. By its nature, UITFs pool investor funds to create a large fund. Under a professional fund manager's watchful eyes, investors can productively harness these funds and take advantage of economies of scale. As these professionals actively manage the holdings of UITFs once you have them set up, you can sit back, relax, and make your money work for you.
Advantages of choosing UITFs
Easy passive income- Some UITFs require a minimum amount of P1,000. Compared to other forms of investments that require capital in the hundreds of thousands of pesos, this initial capital is much more doable for young professionals and fresh graduates looking to get a head start on their investment as soon as they get their first paycheck.
Professional and experienced fund managers- Rather than doing the legwork and taking the risk of investing without professional experience, you’re giving your money to a bank with professionals that are experts in investing.
Diversified investment through one bank- Banks serve as a middleman between you and the different types of investment instruments in the market. Your fund will be diversified into multiple industries and companies, however, your fund manager can maximize your profits because unlike you, this is all they do day in and day out.
Stepping stone to other types of investments- This is a great option for first-time investors who have little to no experience in dealing with investments. Once you’ve had some experience in UITFs, this may act as a ladder towards other investment types.
Are UITFs for me?
If you’re a first-time investor and prefer to passively watch your money work for you, UITFs are a good first investment option for you. They offer diversification because of exposure to different asset classes. This means that UITFs can also be an excellent option for those who already have the expertise and experience in investing.
Ultimately, it depends on the amount of risk you’re willing to have. Depending on your risk tolerance, you may prefer to invest in UITFs because of the low initial investment and having access to a professional fund manager. Once you’ve seen your money at work and understand how investments work, you can start opening your options to other longer-term investments.
So, if you think UITFs are the best option for you, visit your nearest Metrobank branch and open a UITF investment today.
