Investing in Mutual Funds and UITFs

Investing in Mutual Funds and UITFs
For this article I would like to point out the benefits of investing in a mutual fund or a Unit Investment Trust Fund (UITF).

But first, I would like to explain what they are.

Mutual Funds and UITFs work pretty much the same way. People pool their money, a fund manager oversees the money and makes the investment, and the returns or profits are given back to the people after a small fee is deducted as payment to the fund manager. You can then choose to keep your money in the account and let it grow, or you can withdraw all or part of it.

The main difference is that Mutual funds are basically companies and are regulated by the Securities and Exchange Commission.

UITFs are basically bank products and are regulated by the Bangko Sentral ng Pilipinas.

But the biggest difference is in the types of mutual funds and UITFs, and there are four basic types:

  • Money market funds - invested in time deposits and special deposit accounts. These are considered low risk investments.
  • Bond funds - invested in corporate or government bonds. Basically you are buying a company or government's debt. The profit is the interest that the company or government pays on the loan. This is typically considered a medium risk investment.
  • Equity funds - invested in the stock market. This is a high risk investment.
  • Balanced Fund - invested in both bonds and the stock market. This is also typically considered as high-risk, but less so than equity funds.
*another type are Index Funds.

(For more information on Mutual funds and UITFs, we can refer to Fitz Villafuerte's articles on these at fitzvillafuerte.com).

So why invest in mutual funds and UITFs?
  • They can offer superior returns than a time deposit. But for money market funds, the returns are practically the same.
  • You can be a passive investor. Simply add money to your account and a professional fund manager will do the work of investing it.
  • Increased diversification. Because money from different people are pooled together, the fund manager can buy a bigger array of stocks than any single member of the fund could. The diversification then makes the fund less vulnerable to market volatility.
  • It takes less money to invest. For as low as 5,000 you can be part of a fund which owns several stocks or bonds.  If you were to do it yourself, it would take possibly ten times that amount before you could buy a similar portfolio.

For the less experienced investor, mutual funds and UITFs can be a good way to grow your money while learning to manage your investment yourself.

(As for myself, I've been investing in UITFs and Mutual Funds for over a year now.)

But it's important to first do your due diligence. Research thoroughly the company or bank you are planning to invest with. Make sure that they are a legitimate entity and they have a good track record of performance.


For those thinking of getting mutual fund themselves you can refer to this list of legitimate mutual fund companies in the Philippines: http://www.pifa.com.ph/memlist.asp

And here's a sample of how much returns are possible for mutual funds:
(Data taken from: http://pifa.com.ph/factsfignavps.asp)


Fund Name 1 yr. Return (%) 3 yr. Return (%) 5 yr. Return (%) YTD Return (%)
Stock Funds 
    Primarily invested in Peso securities
ATRKE Alpha Opportunity Fund, Inc.* *** n.a.  n.a.  n.a.  n.a. 
ATRKE Equity Opportunity Fund, Inc.* 27.35%  24.04%  9.88%  27.42% 
First Metro Save and Learn Equity Fund,Inc.* 30.5%  31.86%  18.76%  26.96% 
Philam Strategic Growth Fund, Inc.* 31.73%  27.43%  13.89%  30.72% 
Philequity Fund, Inc.* 34.68%  30.08%  16.76%  33.73% 
Philequity PSE Index Fund Inc.* 32.06%  24.79%  13.33%  29.5% 
Philippine Stock Index Fund Corp.* 37.16%  24.57%  10.61%  34.21% 
Sun Life Prosperity Philippine Equity Fund, Inc. 33.5%  24.47%  11.71%  31.97% 
United Fund, Inc.* 20.98%  11.72%  8.54%  19.03% 
    Primarily invested in foreign currency securities
ATR KimEng AsiaPlus Recovery Fund, Inc.** 6.15%  n.a.  n.a.  9.24% 
Balanced Funds 
    Primarily invested in Peso securities
ALFM Growth Fund, Inc 19.08%  21.96%  n.a.  18.2% 
ATRKE Philippine Balanced Fund, Inc. 22.5%  19.24%  8.24%  22.54% 
Bahay Pari Solidaritas Fund, Inc. 26.51%  n.a.  n.a.  25.34% 
First Metro Save and Learn Balanced Fund Inc. 27.48%  29.04%  23.96%  24.41% 
GSIS Mutual Fund, Inc. 26.14%  22.97%  12.02%  25.14% 
NCM Mutual Fund of the Phils., Inc 24.03%  n.a.  n.a.  22.78% 
Optima Balanced Fund, Inc. 25.13%  18.71%  8.89%  23.86% 
Philam Fund, Inc. 26.9%  24.1%  12.37%  25.99% 
Sun Life of Canada Prosperity Balanced Fund, Inc. 26.18%  19.29%  9.62%  24.62% 
    Primarily invested in foreign currency securities
Cocolife Dollar Fund Builder, Inc. 11.77%  n.a.  n.a.  9.65% 
PAMI Asia Balanced Fund, Inc. 11.61%  n.a.  n.a.  11.98% 
Sun Life Prosperity Dollar Advantage Fund, Inc. 8.57%  4.11%  2.41%  8.53% 
Bond Funds 
    Primarily invested in Peso securities
ALFM Peso Bond Fund, Inc. 6.71%  7.27%  6.23%  5.81% 
Cocolife Fixed Income Fund, Inc. 7.63%  9.5%  9.1%  7.32% 
Ekklesia Mutual Fund Inc. 7.81%  7.85%  5.99%  6.82% 
First Metro Save and Learn Fixed Income Fund,Inc. 11.26%  11.4%  8.12%  9.59% 
Grepalife Bond Fund Corporation 11.32%  7.26%  n.a.  11.07% 
Philam Bond Fund, Inc. 11.72%  8.31%  6.5%  8.9% 
Philequity Peso Bond Fund, Inc. 8.12%  8.31%  6.82%  7.72% 
Prudentialife Fixed Income Fund Inc. 8.66%  5.14%  3.76%  7.67% 
Sun Life of Canada Prosperity Bond Fund, Inc. 7.04%  7.31%  5.94%  5.76% 
Sun Life Prosperity GS Fund, Inc. 7.16%  7.44%  6.33%  5.98% 
    Primarily invested in foreign currency securities
ALFM Dollar Bond Fund, Inc. 9.87%  6.69%  5.46%  9.61% 
ALFM Euro Bond Fund, Inc. 9.48%  4.58%  4.03%  8.65% 
ATR KimEng Total Return Bond Fund Inc. 4.28%  n.a.  n.a.  4.49% 
Grepalife Dollar Bond Fund Corp. 17.25%  8.75%  7.78%  16.92% 
Grepalife Fixed Income Fund Corp. 5.72%  6.74%  5.55%  5.83% 
MAA Privilege Dollar Fixed Income Fund, Inc. 7.03%  2.41%  2.76%  8.12% 
MAA Privilege Euro Fixed Income Fund, Inc. n.a.  n.a.  n.a.  4.08% 
PAMI Global Bond Fund, Inc 2.35%  1.44%  n.a.  2.28% 
Philam Dollar Bond Fund, Inc. 11.21%  7.95%  6.78%  11.13% 
Philequity Dollar Income Fund Inc. 11.3%  8.62%  7.5%  11.6% 
Sun Life Prosperity Dollar Abundance Fund, Inc. 10.44%  7.84%  6.54%  10.44% 
Money Market Funds 
    Primarily invested in Peso securities
ALFM Money Market Fund, Inc. 3.25%  n.a.  n.a.  3.03% 
First Metro Save and Learn Money Market Fund,Inc. 2.18%  1.81%  n.a.  2.11% 
Philam Managed Income Fund, Inc. 2.43%  1.97%  1.75%  2.28% 
Sun Life Prosperity Money Market Fund, Inc. 0.36%  0.51%  1.02%  0.35% 



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7 comments:

  1. Hello po, thanks for the great articles you share. Im planning to invest in UITF but I have very basic info po about investing in general- mostly from blogs and forums lang. Question po from above where you mentioned :
    "You can be a passive investor. Simply add money to your account and a professional fund manager will do the work of investing it."
    "For the less experienced investor, mutual funds and UITFs can be a good way to grow your money while learning to manage your investment yourself."

    Since I dont have any prior experience in investing, I'd rather be a passive investor. But then I also would wish to learn how to manage my investment by myself. Could you please give me advice kung pano po? Thanks

    ReplyDelete
    Replies
    1. Hi Anonymous,

      If you're serious about investing directly in the stock market, you first need to gain the knowledge. There are multiple sources: blogs and forums (like you've done so far), books (which you can buy or borrow), and attend seminars workshops.

      For myself, I tried investing directly while learning about it. I would not really recommend that approach. I've been lucky so far, but I do hear success stories talking about how much money people lost in stocks before re-grouping, learning, and later on making money.

      For more practical, step-by-step approach:
      1. Find a stock investing blog. Not necessarily mine, but one that offers more than just charts. Try to familiarize yourself with the terms and what not.

      2. Join a forum (I like pinoy money talk, but there's also finance manila). You can go hear to ask questions that you have after reading blogs or other websites.

      3. Objectively assess yourself and your lifestyle. Choose an investing approach that will suit your personality and the time you have to learn and invest/monitor.

      4. Take the time to really learn before placing any real money directly in stocks.

      5. establish an emergency fund.

      6. Build up a stock investment fund.

      7. review your cash flow. be realistic. make sure you're still building up your stock investment fund and emergency fund.

      8. Have a goal for your stock investment fund. If it's really for retirement, don't take out money to buy stuff - even if you're making a killing. If a portion of it are for some other short term goal, don;t be greedy and just cash out when the goal is hit.

      9. your investment fund should always have money in it. never be 0% cash. Instead, sell off non- or low-performing stocks to accumulate more shares of better-performing assets.

      10. Keep learning. There's actually a whole lot more to learn; but I'd be misrepresenting myself if I spout off more advice. I'm not an expert, but I know enough to help you minimize losses while getting your bearings.

      Delete
  2. HI Carlos, I've been reading your blog the whole day and like the person who commented above, I also have basic info about these stuffs. I actually started searching about variable life insurance which I also found in your blog. I find it interesting, how people share their experience and they're knowledge about stuffs. I remember you said that it's better to invest in UITF or MF rather than VUL (now I can see the point- thanks to you). I also have very limited knowledge about these.. But as a beginner, do you think it will be wise to invest in UITF like the BDO equity fund while learning? I can see from your comment above that it is wiser to learn first before investing into stocks. You mean UITF or the one you personally invest? Can you share some tips please. I will also follow the above. Thank you :)

    ReplyDelete
    Replies
    1. Hi Janine,

      Thanks for reading my blog!

      When it comes to investing directly in stocks, I think it's best to learn first. It's easy enough to buy (and even sell) but the strategy and psychology involved takes some getting used to. It's more profitable to learn first.

      When it comes to UITF, there are some basic info you need to understand first, but for the most part it's possible to invest right away.

      When investing in equity funds, it's good to be able to understand what the prospectus is saying, the numbers it's quoting and how to judge if it's a good fund for you. But that's relatively simple, and you may have already read my post about that. After that, it's just a matter of investing regularly.

      But to answer your question more directly: It 's ok to invest in equity funds while learning as long as you understand a few key points:
      1. You investment will wildly change in value
      2. The best fund last year likely won't be the best fund this year
      3. Consider cost-averaging; it's a good strategy for any beginner investor
      4. You really need a goal for your investments.

      As long as you understand those, you can invest in an equity fund while learning.

      Delete
  3. Hi Calos, Thank yu so much. I'll be reading more about cost-averaging now. I hope I can learn much. Thank you again!

    ReplyDelete
  4. Tell me why investors do not choose the best funds or change to the best funds, even though they know which funds are the best funds.

    ReplyDelete
    Replies
    1. Hi odrareG,

      That's tough. I think some may not know, as they don't keep up to date regularly.

      Maybe some try, but since you can't predict the market, and by extension the funds, then they end up with "2nd best".

      It could also be that maybe their good, but you can't switch willy-nilly. Just because a fund showed up at #1 this year, doesn't mean they'll be #1 next year and be the "best" overall in five or 10 years time.

      It could also be that they are "sacrificing" some potential returns for factors that are just as important in their situation - like accessibility, reliability, trustworthiness, customer service, etc.

      It's a difficult question really. But in the end, it could as simple as one thing may be best for you, another for me, and yet another thing is best for them.

      Delete