Unit Investment Trust Funds (uitf)

[Dr_PepPeR]

A PRIMER ON... UNIT INVESTMENT TRUST FUNDS

 

Q: What is a Unit Investment Trust Fund (UITF)?

A: UITF is a pooled investment fund that commingles the monies of investors into a single dynamic portfolio of investments and made available by units of participation. The units of participation will be based on the price of the fund on date of purchase. The UITF was created by the issuance of BSP Circular 447 to align the management of pooled investment funds with global standards.

 

Q: How is the price of the fund computed?

A: The price of the fund is the Net Asset Value Per Unit (NAVPU). The NAVPU is equal to Net Asset Value (NAV) divided by the outstanding units of participation in the fund.

 

Q: What is Net Asset Value (NAV)?

A: NAV is the total market value of the financial instruments of the fund less expenses such as taxes, fees and other qualified operating expenses.

 

Q: Why is market price used for valuing the financial instruments of the fund?

A: UITF employs global standards by using a mark-to-market (MTM) valuation method for all financial instruments of the fund. This means instruments are valued daily against end of day market prices. It provides equitable treatment to investors coming in and out of the fund because it offers a fair price for the purchase and redemption of units of participation.

 

Q: Is investing in UITFs safe?

A: Yes. Investments will be limited to high-grade and highly-liquid instruments such as time deposits government securities. However, because of the valuation method used, an investor may be exposed to price risk when he redeems, if interest rates are volatile. Client can defer redemption until market conditions become more favorable. It should be noted that exposure to price risk in UITFs is the same as in other long-term investments.

 

Q: What are the benefits of participating in UITFs?

A: A: Investors can enjoy several benefits:

 

Ability to participate in high-yielding long-term financial instruments in the fund but will not necessarily lock up client's money.

 

With a minimum required contribution, participants can enjoy a wide selection of financial instruments and thus minimizing risks. Clients have the opportunity to access different instruments not normally available to retail investors.

 

Opportunity for higher returns due to possible capital gains on top of accrued income.

 

Pool of funds can reduce transactional costs bringing potential savings.

 

Q: What are the other global standards used by the UITF?

A: An accredited BSP 3rd party custodian will safekeep the securities of the fund while an independent auditor acceptable to the BSP will audit each UITF annually.

 

Q: How will an investor know where the fund is invested?

A: A list of prospective and outstanding financial instruments of the fund will be made available at the Head Office of Asiatrust Bank.

 

Q: How can an investor compare the performance of their trustee bank versus others?

A: At least once a week, all trustee banks will publish in major dailies, the performance of the fund, which include the latest NAVPU and the Return on Investment.

 

Q: Why cannot an indicative rate be quoted?

A: Indicative rates cannot be quoted because of the valuation method used.

 

Q: What will an investor receive to evidence his participation?

A: An investor will be receiving a Confirmation of Participation that indicates the name of investor, value date, NAVPU, currency amount of investment and the number of units pruchased.

 

Q: What is an ideal minimum investment horizon for UITF?

A: We are encouraging a minimum investment horizon of at least one (1) year because the fund has opportunities for higher returns due to possible capital gains on top of accrued income.

 

Q: When can an investor withdraw his investment?

A: Investors may withdraw after the minimum holding period of the UITF has been met. The investor can still redeem his investment even before the required minimum holding period but subject to an exit fee.

 

Q: Why is there a need to impose an exit fee?

A: The exit fee will be used to defray the processing cost of the client's pretermination in the fund.

 

You may post here or PM me for any questions. Thanks for looking.

Edited October 5, 2008 by Dr_PepPeR

[Mandrake]

Used to have such an account with RCBC. Which other banks are currently offering such a product, bro?

[Dr_PepPeR]

Used to have such an account with RCBC. Which other banks are currently offering such a product, bro?

<{POST_SNAPBACK}>

 

Almost all of the universal/commercial banks have UITF products now, and even some thrift banks have it too, like Robinsons Bank and Keppel. The big boys have a family of UIT funds that are targeted to different market sectors too. The investors don't really have a choice if they want better than Time Deposit or money market rates, as the Common Trust Funds will be shifted by October of this year.

[Dr_PepPeR]

If you guys want to take advantage of the bull run in the stock market now, but don't have enough money to go direct to a stock broker, please consider an equities or balanced UITF investment. An equities fund has 50% or more of the fund invested in stocks while a balanced fund has a limit of 50% investment in equities, the rest being in fixed income investments.

[Dr_PepPeR]

NAVPUs of all UITFs with fixed income went down due to market forces. Expect a correction soon as a lot of fund managers unloaded assets today.

[bRIX]

NAVPUs of all UITFs with fixed income went down due to market forces. Expect a correction soon as a lot of fund managers unloaded assets today.

<{POST_SNAPBACK}>

 

i surely hope so... sir tanong ko lang what do you mean by "correction"?

[francoMigz]

I am planning to invest on some sort of Fund, been looking on some prospectus from banco de oro ... can't decide though which way to go, di ko kasi alam ang mga technicalities.

 

What would be the best if I have a 200k investment?

[Mandrake]

i surely hope so... sir tanong ko lang what do you mean by "correction"?

<{POST_SNAPBACK}>

 

technical jargon for an abrupt change (usually a drop) in rate or price, which is temporary

and expected to settle or normalize hence a "correction". Hope I did justice on that one...Dr. Pepper. :cool:

[valjean]

NAVPUs of all UITFs with fixed income went down due to market forces. Expect a correction soon as a lot of fund managers unloaded assets today.

<{POST_SNAPBACK}>

 

I noticed that NAVpus when down but I still don't understand the reason why it did. Care to explain? Likewise can we expect the correction to continue. I noticed some went down 3 straight days.

Thanks.

[Dr_PepPeR]

technical jargon for an abrupt change (usually a drop) in rate or price, which is temporary

and expected to settle or normalize hence a "correction". Hope I did justice on that one...Dr. Pepper. :cool:

<{POST_SNAPBACK}>

 

You hit it right on the nail Sir Mandrake. Much better than I could have done.

[Dr_PepPeR]

  I am planning to invest on some sort of Fund, been looking on some prospectus from banco de oro ... can't decide though which way to go, di ko kasi alam ang mga technicalities.

 

What would be the best if I have a 200k investment?

<{POST_SNAPBACK}>

 

Sir, there are still some things to consider:

 

1. What is your risk appetite? If you are conservative, you may want to stay in fixed income instruments, like Government Securities, corporate notes and bonds and other money market instruments. If you are more adventurous, you might want a fund with equities.

 

2. What is your investment horizon? When do you need to get back your investment - after a month or so, 2-3 years, or longer? You can the look at the investments based on when you need your money back.

 

3. What is your objective? Is it for your retirement, for buying something or emergencies? This will determine also how liquid you would like your investment to be.

 

4. What is your experience? How well do you know the market? Do you have the stomach for it?

 

From here you may be able to match the investment products to what you require.

[Dr_PepPeR]

I noticed that NAVpus when down but I still don't understand the reason why it did. Care to explain? Likewise can we expect the correction to continue. I noticed some went down 3 straight days.

Thanks.

<{POST_SNAPBACK}>

 

Sir, I hope you will bear with me on this. UITFs operate on the mark-to-market principle which means that the assets of the fund are valued at the price they are sold on the financial market. This valuation is done every day so in some ways they behave like stocks in that the values can go up or down on a daily basis. Now, since UITF funds are relatively new, they have a lot of long term investments, which will provide higher rates than short term investments. If the interest rates go down, the demand for long term investments go up, since investors would like to have the higher yielding instruments for a longer term. The opposite happens when interest rates go up. Since demand for short term instruments will thus increase (because investors would like to have the option to shift to other higher yielding investments when the instruments they hold mature), demand for long term goes down, and thus, the market price goes down. Interest rates were either moving down or sideways until a few days ago when it started moving up. Some factors also that may have affected the financial market is that the government has not been borrowing too much (in the form of GS) and the price of oil is still up. NAVPUs started going down as a consequence but the fund managers have started to sell their long term instruments since then so the NAVPUs of most of the UIT Funds will start to go back up as the assets with lower values are taken out of the fund. I know it is very technical but that is really the best I can do. Hope it helped.

Edited May 6, 2006 by Dr_PepPeR

[bRIX]

so there's no reason to panic as long as i'm for the long haul? i got burned the past week with the drop in the Fixed Income fund.

[Dr_PepPeR]

so there's no reason to panic as long as i'm for the long haul? i got burned the past week with the drop in the Fixed Income fund.

<{POST_SNAPBACK}>

 

That is correct sir. You need to stay in UITF for about a year if you want to take advantage of your fund manager's expertise and resources. Remember, the prices change DAILY so you win some, you lose some day to day but remember in the long run, the power of time and compounding plus active management should give you a lot more than handling the investments yourself.

 

Until you get out of the UITF by redemption, remember that any loss or gain is UNREALIZED.

Edited May 7, 2006 by Dr_PepPeR

[bRIX]

That is correct sir. You need to stay in UITF for about a year if you want to take advantage of your fund manager's expertise and resources. Remember, the prices change DAILY so you win some, you lose some day to day but remember in the long run, the power of time and compounding plus active management should give you a lot more than handling the investments yourself.

 

Until you get out of the UITF by redemption, remember that any loss or gain is UNREALIZED.

<{POST_SNAPBACK}>

 

another question sir, how/where does compounding happen in UITF? thanks for your sharing your knowledge to noob investors like us.