Unit Investment Trust Funds (uitf)

[Dr_PepPeR]

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

<{POST_SNAPBACK}>

 

The same way compounding happens in an ordinary investment sir.

 

The UITF invests in certain assets, for example lets say time deposits.

 

When the TD matures, the interest earned plus the principal is reinvested again in some other instrument such as GS or corporate commercial papers.

 

Likewise, the interest income of these other instruments are also reinvested.

 

So compounding happens as a matter of course in a UITF.

 

What differentiates the UITF from other investments is that market forces come into play in that the assets of the fund, aside from earning interest, may also gain in value due to its market price, or the price some other investor is willing to pay for the paper/instrument the UITF holds. The market price may go up or down, but combined with the interest income, on the whole the investment in your UITF has the potential to earn you more than simple interest alone.

 

I hope this answered your question. If not, just let me know and I will try again.

[Dr_PepPeR]

By the way guys, now is a good time to go into UITF while the NAVPUs are low, early this week would be OK as long as the NAPUs stay down for a while.

[bRIX]

The same way compounding happens in an ordinary investment sir.

 

The UITF invests in certain assets, for example lets say time deposits.

 

When the TD matures, the interest earned plus the principal is reinvested again in some other instrument such as GS or corporate commercial papers.

 

Likewise, the interest income of these other instruments are also reinvested.

 

So compounding happens as a matter of course in a UITF.

 

What differentiates the UITF from other investments is that market forces come into play in that the assets of the fund, aside from earning interest, may also gain in value due to its market price, or the price some other investor is willing to pay for the paper/instrument the UITF holds. The market price may go up or down, but combined with the interest income, on the whole the investment in your UITF has the potential to earn you more than simple interest alone.

 

I hope this answered your question. If not, just let me know and I will try again.

<{POST_SNAPBACK}>

 

I understand now... thanks again sir.

 

By the way... NAVPU went up today! I guess this is the correction you predicted last week.

[Dr_PepPeR]

NAVPU prices will start to inch up as the Fund Managers scramble to stabilize the ROI of the UITFs. Just don't expect dramatic gains as the object is to smoothen the NAVPU curve upwards and the effect of the change in assets can be gradual.

 

Like I said, it might be a good time to go to UITF now while the NAVPU is still trying to recover.

[Dr_PepPeR]

Fixed Income UITF NAVPUs are still flat, again this might be a good time to go to UITF. For those in UITFs that have equities, you might consider redeeming and cashing in on your gains.

[Dr_PepPeR]

UITF primarily in fixed income funds will take a beating today! Hold on to your seats guys, Banco De Oro sold a big chunk of Fixed Income Treasury Notes yesterday that sent FXTN prices spiralling down.

[bRIX]

will it go back up anytime soon?

[tricy_25]

UITF primarily in fixed income funds will take a beating today! Hold on to your seats guys, Banco De Oro sold a big chunk of Fixed Income Treasury Notes yesterday that sent FXTN prices spiralling down.

<{POST_SNAPBACK}>

 

 

hayyyy ndi ko talaga masundan yang about sa UITF na yan..hehehe

[Dr_PepPeR]

hayyyy ndi ko talaga masundan yang about sa UITF na yan..hehehe

<{POST_SNAPBACK}>

 

OK lang po yun, just ask. Took me a long time before I got the realtionship between price and yield. Anyway, interest rates are now correcting so we should see an uptrend in the NAVPUs within the next few days. Heavy redemptions (withdrawals) marked the past few days as investors panicked over the declining NAVPUs and chose to realize their losses instead of waiting for the bond market prices to correct. For the first time the financial markets felt the impact of the UITF market as it was the selling of long term FXTNs that drove the market haywire.

[bRIX]

@Dr Pepper

 

is this a good time to buy more units?

[Dr_PepPeR]

@Dr Pepper

 

is this a good time to buy more units?

<{POST_SNAPBACK}>

 

Yes sir, this is a good time to go into UITF both Fixed Income and Balanced/Equity because the NAVPUs are all down, and I mean ALL. Buying should be done by today and at the latest tomorrow, interest rates started correcting yesterday so NAVPUs will be going up very soon.

[Dr_PepPeR]

Rates are starting to go down, NAVPUs are starting to go up. Hopefully next week back to normal.

[pogingpogi]

bakit kaya ang bond fund ng BDO eh lage pababa ng pababa una ok naman tumataas na ngayon mejo malaki binaba kawawa naman kami naginvest sana umayos na lahat

[Talley]

bakit kaya ang bond fund ng BDO eh  lage pababa ng pababa una ok naman tumataas na ngayon mejo malaki binaba kawawa naman kami naginvest sana umayos na lahat

<{POST_SNAPBACK}>

 

Good day pogingpogi,

 

The bond fund is going down probably for the following reasons:

 

First, the rise in interest rates abroad sent bond prices down so the NAVPU of the fund went down. This decrease caused a panic and people withdrew their money. The withdrawals limited the funds of the fund managers so they weren't able to efficiently adjust their portfolios. Consequently, NAVPUS will still be prone to losses until fund managers are able to purchase enough of the newer bonds to balance out their holdings.

 

In the long run though, you should be ok as BDO is a pretty decent bank.

 

Hope that helps. If you have any other questions, check out my blog.

[Dr_PepPeR]

TRUST INDUSTRY TAKES ON MARKET CHALLENGES

 

By Gerard S. Dela Pena

Business World, Wednesday May 31, 2006

 

The ecnomic turnaround in the first quarter of the year has raised hopes among investors that investment channels such as trust products would provide better yields. With the economy exhibiting a better performing stock and foreign exchange, as well as a stronger domestic liquidity, it seemed like there was no other way for the trust industry to go but up.

 

Despite recent events that hurt the unit investment trust fund (UITF) business, industry players are still optimistic that the termporary aberrations in the world market can make investing in times of crisis an opportunity to reap future gains.

 

Steep Climb, Sharp Drop

The continued interest rate hikes in the United States have become a major challenge for the local UITF business. Amidst the downtrend of itnerest rates in the Philippines which bottomed out in April due to a "better-than-expected" budget gap, the local economy was not spared from the effects of the uptrend in the U.S.

 

For the past three years, the US has experienced 16 interest rate hikes due to inflationary concerns and tightened spending, creating a negative impact on the world market.

 

As expected, this steep climb of interest rates pulled down the prices of bonds and net asset values per unit (NAVPUs) of UITFs. With this, financial experts predict possible losses of 10% to 15% of principal investments in such funds.

 

Worried over the possible losses, a lot of investors pulled out their investments, making the market all the more volatile as fund managers were forced to sell of their holdings to fund withdrawals, Trust Officers Association of the Philippines (TOAP) President Ma. Lourdes T. de Vera said.

 

"It's the first time in UITF history that there was a reversal of trend (drastic drop and interest rate hike). That's the reason why people got nervous. I hope people will eventually get used to the fact that there are risks associated to the product," she said.

 

However, Ms. de Vera made it clear that an investor may minimize or regain his losses if he were to widen his investment time horizon.

 

"The key to investing is time. The longer you are investing, generally, the better your yields," Ms. de Vera said. "This (massive withdrawal) will eventually simmer down and people will realize that they should be long-term investors so that they may earn their projected gains. If you're a long-term investor, you should be risk-tolerant. You should not be alarmed if the value of your fund is going down. That is only a temporary event."

 

TOAP is planning to impose safety nets on the offerings of member institutions wherein fines will be incurred should the investor redeem his investments before the minimum holding period of a particular fund.

 

The preferred minimum holding period is six months for money market funds and one to three years for bond funds, Ms. de Vera said.

 

Growing Pains

The projected losses in principal investments in UITFs, however, are not an indication that the entrie trust industry is weakening.

 

According to September 2005 date of TOAP, other trust outlets such as employee benefit plans, personal trust, investment management accounts, and pre-need plans post yearly growth of 10.82%, 24.42%, 33.84% and 2.82%, respectively, as compared to end-2004 figures.

 

Ms. de Vera added that not all trust products are affected by market volatility, as these pertain to traditional trust arrangements.

 

And despite the crunch in the world market and its recent introduction, the UITF has posted significant gains, hitting P122.9 Billion by end-2005 compared to P26.4 Billion when it was introduced in June last year. The size of the UITF buisness is pegged at P230 Billion as of March this year.

 

"(UITF) is a new product; there are growing pains, I think, no, the customers as well as the banks know better what the important things to consider are," Ms. de Vera said,

 

Best Practices, Global Standards

But as far as UITFs are concerned, the trust industry cannot simply wait for the volatility in the market to calm down before making the right move to improve the industry.

 

One way to realize this is to create a set of uniform standards across the industry. As of the moment, TOAP has already adopted standards such as having absolute instead of annualized basis in giving quotations, and providing disclosure of detailed information to clients such as name of the fund and institution, investment portfolio, currency, fund classification, returns, minimum term, and risks, among many others.

 

"It took four years to put up BSP Circular 447 which governs the UITF because it has to be of global standard," Ms. de Vera said.

 

In addition, she mentioned a number of practices that can be adopted by trust entities to improve the business.

 

She said that keeping abreast of technology will enable one to be updated on the movements in the world market, allowing a trust entity to act accordingly.

 

She added that keeping tabs on regulations may enable a trust institution to see how it can improve its business and operations in accordance with the new rules imposed by the government.

 

Opportunities

While the industry still has to wait for the volatility in the market to calm down and see the business pick up again, Ms. de Vera said that such challenging times may provide opportunities for investors.

 

"Things do not permanently go up. They have to come down at some time. As of now NAVPUs are down and interest rates are high, so its's practically a good time to get in. I hope the real investors realize that opportunity. The industry will surely come off better after all these events, after all the dust have settled," she said.