Unit Investment Trust Funds (uitf)

[weekdaywarrior69]

i must have sounded stupid with my above post. what i mean is with the current down trend on NAVPUs, do you see it bottoming out not far from its current values and eventually rebounds?

 

i've talked to a bank's branch manager and he suggested me to wait it out a bit more if it will still continue to slide down before i get in.

[Dr_PepPeR]

i must have sounded stupid with my above post. what i mean is with the current down trend on NAVPUs, do you see it bottoming out not far from its current values and eventually rebounds?

 

i've talked to a bank's branch manager and he suggested me to wait it out a bit more if it will still continue to slide down before i get in.

 

I wish I had a crystal ball sir. As far as I know the NAVPUs are on a correction phase now. Yes, it is a good time to go in but I'm not sure if this will further bottom out. The problem is that Tetangco and Omar Cruz are giving mixed signals due to their feuding. Everytime there is a downtrend, the general rule is that you should use that opportunity to go in. If I knew when it would bottom out I think I would be rich and would be able to spend my time posting on this other thread.....

[golfer697]

Of course, if you really want to play it like the stock market, it is really up to you. However, you will really be on your own since there will be a lack of fundamental and technical tools for you to base your orders on. You also have to take into account the pretermination periods, some are as short as 30 days while others are 90 days. But like equities, the rule is simple, buy low sell high. Don't wait for the topping off or bottoming off, by that time it may be too late. Good luck!

 

 

That's true Dr. Pepper! No fundamentals to rely on just gut feel & maybe constant monitoring. But I just like to cut my losses & play it safe. No use going after high returns if you lose your principal. As regards the pretermination periods, it won't matter if you're losing since they will penalize you off our earnings. I asked the bank if we can halve the losses, hehe. You know the answer to that! Thanks. I need all the luck especially in a down market. But looks like its starting to pick up.

 

You would be posting in which thread Dr. Pepper???

[Dr_PepPeR]

That's true Dr. Pepper! No fundamentals to rely on just gut feel & maybe constant monitoring. But I just like to cut my losses & play it safe. No use going after high returns if you lose your principal. As regards the pretermination periods, it won't matter if you're losing since they will penalize you off our earnings. I asked the bank if we can halve the losses, hehe. You know the answer to that! Thanks. I need all the luck especially in a down market. But looks like its starting to pick up.

 

You would be posting in which thread Dr. Pepper???

 

Just take note that some bank's UITFs pretermination penalty is based on the proceeds received, and not on the income, so whether you win or lose on pretermination, you still lose (did I get that right?).

 

I would be posting more on the MP thread sir, instead of here IF I had a working crystal ball.

[golfer697]

Just take note that some bank's UITFs pretermination penalty is based on the proceeds received, and not on the income, so whether you win or lose on pretermination, you still lose (did I get that right?).

 

I would be posting more on the MP thread sir, instead of here IF I had a working crystal ball.

 

 

Oh okay!!! Hehehe! Sa MP thread pala.

Didn't know that some banks base their pretermination penalty on the proceeds!!! That would be unfair!!! And yes you are right, there's a great possibility that win or lose there's still a tendency to end up losing. Mine charges penalties on the income so one can actually play with the placement.

[Guest lene]

Didn't know that some banks base their pretermination penalty on the proceeds!!! That would be unfair!!! And yes you are right, there's a great possibility that win or lose there's still a tendency to end up losing. Mine charges penalties on the income so one can actually play with the placement.

 

Really? I didn't know that there were some banks that would charge penalties on the "income" alone, considering the valuation is marked to market and normally, early pretermination prices are based on a certain percentage below the regular price. Would you care to share the name of your bank that does this?

[wek1012]

hi just wanna ask if only banks offer uitf? ano ung inooffer s sunlife, philaxa? are those uitf's also? if they are not, which is better?

[Dr_PepPeR]

hi just wanna ask if only banks offer uitf? ano ung inooffer s sunlife, philaxa? are those uitf's also? if they are not, which is better?

 

Not really, only institutions who have a trust license can offer UITF products. ATR Kim Eng, Philequity and some other investment houses offer UITF products, Sunlife and Philaxa offer insurance investment products such as Sunlife's Honeypot and Philaxa's...I forgot. But these are not UITF nor mutual funds but still use the pooled fund concept for investments. Of course, I'm biased towards UITFs since banks normally charge the least management fees and they are regulated by the Bangko Sentral which is much stricter (and a lot more assholic) than the Insurance Commision in terms of audit. I really shouldn't be posting at 3:00am in the morning.

[golfer697]

Really? I didn't know that there were some banks that would charge penalties on the "income" alone, considering the valuation is marked to market and normally, early pretermination prices are based on a certain percentage below the regular price. Would you care to share the name of your bank that does this?

 

 

MetroBank & BDO charges penalties based on the income. Which banks charge based on the placement amount?? Thanks.

[golfer697]

Not really, only institutions who have a trust license can offer UITF products. ATR Kim Eng, Philequity and some other investment houses offer UITF products, Sunlife and Philaxa offer insurance investment products such as Sunlife's Honeypot and Philaxa's...I forgot. But these are not UITF nor mutual funds but still use the pooled fund concept for investments. Of course, I'm biased towards UITFs since banks normally charge the least management fees and they are regulated by the Bangko Sentral which is much stricter (and a lot more assholic) than the Insurance Commision in terms of audit. I really shouldn't be posting at 3:00am in the morning.

 

 

Hehe sobrang masipag magpost! Or you came from somewhere??

Have been offered AXA a lot of times but the returns aren't that good! SunLife recommends that you lock in for 2 to 5 years which is too long for me!

[Guest lene]

MetroBank & BDO charges penalties based on the income. Which banks charge based on the placement amount?? Thanks.

 

Perhaps you can check with your bank again since I don't think it's possible to charge penalties on the "income" alone . The concept of UITFs is you buy a number of units at a certain price. After a certain period, you redeem it at the prevailing market price or NAVPU . Whatever is the difference of both prices is your "gain" or "loss". If you redeem it before the end of the holding period, the price they will normally use will be a bit lower than the NAVPU for the day. Using this lower price, you can see it you gained or lost in the transaction ( based on the original NAVPU you bought the UITF at).

 

Perhaps in your case when you redeemed early, the price set is still higher than the price you bought it at so you would presume the penalty is just on the " income" alone.

 

Please correct me, Dr. Pepper, if I may be wrong in my understanding....

[gere]

Just my take.

All of these came about when the "new" Phil. Accounting System (PAF) came into effect. The purpose is to

prevent companies (mostly banks) to window dress their Net Asset Value (NAV). Whereas before when banks

invest, the value at the time of acquisition is declared even if there has been a change in the market value of

the investment. Today, any changes means banks will have to adjust accordingly (mark to merket is what they

call it) and therefore NAVs fall down. But it does not mean your investment goes down the drain. It simply means

holding period becomes longer. It would be wise to deal with local banks with a Rating of 1. Only 2 or 3 banks are rated

such. As for MNCs, 1 bank made a debacle on their Common Trust Fund (CTF) which was a boon to some investors.

But given the abnormal situation in the banking industry, with transfer pool rates and T-bill rates at an all time low,

where will you invest your money? The stock market is not good either since the price per earning ratios are not as

reliable as it seems. There are even speculations SMC is overpriced 10 times over. What is disheartening is that once

beer cases go out the warehouses, it is declared sold when it fact it is still inventory. Only in the Philippines. Oh well.

[Dr_PepPeR]

Hehe sobrang masipag magpost! Or you came from somewhere??

Have been offered AXA a lot of times but the returns aren't that good! SunLife recommends that you lock in for 2 to 5 years which is too long for me!

 

Sometimes going long will be the only way to get higher returns. For example, if your investment is at least 5 years then it is tax exempt under the CTRP. I am sure there will be something out there for your particular investment objectives, its just a matter of sifting through all the hype and products.

[Dr_PepPeR]

Perhaps you can check with your bank again since I don't think it's possible to charge penalties on the "income" alone . The concept of UITFs is you buy a number of units at a certain price. After a certain period, you redeem it at the prevailing market price or NAVPU . Whatever is the difference of both prices is your "gain" or "loss". If you redeem it before the end of the holding period, the price they will normally use will be a bit lower than the NAVPU for the day. Using this lower price, you can see it you gained or lost in the transaction ( based on the original NAVPU you bought the UITF at).

 

Perhaps in your case when you redeemed early, the price set is still higher than the price you bought it at so you would presume the penalty is just on the " income" alone.

 

Please correct me, Dr. Pepper, if I may be wrong in my understanding....

 

I think you've hit the nail right on the head, ma'am. Under the UITF concept, it is theoretically possible to lose your principal. So if only the income is to be affected by pretermination, it may be taken to mean that the bank indirectly guarantees the principal, which of course is prohibitied under BSP trust regulations and BSP Circular 447 which provides the UITF regulations.

[Dr_PepPeR]

Just my take.

All of these came about when the "new" Phil. Accounting System (PAF) came into effect. The purpose is to

prevent companies (mostly banks) to window dress their Net Asset Value (NAV). Whereas before when banks

invest, the value at the time of acquisition is declared even if there has been a change in the market value of

the investment. Today, any changes means banks will have to adjust accordingly (mark to merket is what they

call it) and therefore NAVs fall down. But it does not mean your investment goes down the drain. It simply means

holding period becomes longer. It would be wise to deal with local banks with a Rating of 1. Only 2 or 3 banks are rated

such. As for MNCs, 1 bank made a debacle on their Common Trust Fund (CTF) which was a boon to some investors.

But given the abnormal situation in the banking industry, with transfer pool rates and T-bill rates at an all time low,

where will you invest your money? The stock market is not good either since the price per earning ratios are not as

reliable as it seems. There are even speculations SMC is overpriced 10 times over. What is disheartening is that once

beer cases go out the warehouses, it is declared sold when it fact it is still inventory. Only in the Philippines. Oh well.

 

Just to clarify this a bit. PAS 19 and 39 deals with the proper way to book investments, employee benefit liability and embedded contracts among others. Since it is an accounting standard, it deals mainly with how a company presents its books, which reflects the financial condition of the COMPANY or the BANK, and not the UITF itself. The way the NAV of a UITF is generated is governed mainly by BSP Circular No. 447, which mandates marking to market valuation of the assets of the UITF. Thus, any asset that cannot be valued using the mark to market method is not eligible as an investment outlet for the UITF. The UITF Net Asset Value is different from the Net Asset Value of the Banki's assets, and the latter is not quite relevant to UITF NAV since these are booked separately as contingent assets in the Bank's financial statements. The Bank's NAV would mostly be relevant in determining the fundamentals of the Bank for investment purposes in the Bank's stock.

[allworkallplay]

morning all, glad to see a few people here spreading the word out to others about UITF's.

 

To interested/potential investors passing by, I certainly hope you all consider UITF's as an alternative to your demand deposit and term deposit accounts. There are many offerings that cater to your risk profile, investment amount and horizon. If the reason you are holding on to a time deposit is protecting your money, do note that even conservative fund offerings offer better returns for minimal risk. Visit a bank near you and try it out

[golfer697]

Perhaps you can check with your bank again since I don't think it's possible to charge penalties on the "income" alone . The concept of UITFs is you buy a number of units at a certain price. After a certain period, you redeem it at the prevailing market price or NAVPU . Whatever is the difference of both prices is your "gain" or "loss". If you redeem it before the end of the holding period, the price they will normally use will be a bit lower than the NAVPU for the day. Using this lower price, you can see it you gained or lost in the transaction ( based on the original NAVPU you bought the UITF at).

 

Perhaps in your case when you redeemed early, the price set is still higher than the price you bought it at so you would presume the penalty is just on the " income" alone.

 

Please correct me, Dr. Pepper, if I may be wrong in my understanding....

 

 

I am fully aware of the NAVPUs at cost & when you sell. I've asked them countless times & even read their contract! Better still, I experienced this before when the UITFs bombed in March! I preterminated and all they did was to give me back my placement based on the day's prevailing NAVPU since I preterminated at a loss!! No penalties were charged since I lost!! Their penalty fee is 50% of income!! It would be horrendous to think that they will charge me 50% of my placement!!! I left the money in RTBs then went back in May 2006. I would not have preterminated if they will penalize me on my placement amount! And this is not saying that they were guaranteeing my placements. Which banks again are you dealing with dearie, so I can avoid them???

[Dr_PepPeR]

I am fully aware of the NAVPUs at cost & when you sell. I've asked them countless times & even read their contract! Better still, I experienced this before when the UITFs bombed in March! I preterminated and all they did was to give me back my placement based on the day's prevailing NAVPU since I preterminated at a loss!! No penalties were charged since I lost!! Their penalty fee is 50% of income!! It would be horrendous to think that they will charge me 50% of my placement!!! I left the money in RTBs then went back in May 2006. I would not have preterminated if they will penalize me on my placement amount! And this is not saying that they were guaranteeing my placements. Which banks again are you dealing with dearie, so I can avoid them???

 

So they gave you back the initial amount you placed with them? If that is true, and if the NAVPU when you preterminated was lower than when you came in, in effect they guaranteed your principal. As far as I know, that is a no-no for trust and UITFs in particular. I forget, which bank is this sir?

[Guest lene]

So they gave you back the initial amount you placed with them? If that is true, and if the NAVPU when you preterminated was lower than when you came in, in effect they guaranteed your principal. As far as I know, that is a no-no for trust and UITFs in particular. I forget, which bank is this sir?

 

Dr. Pepper, I believe golfer697 mentioned Metrobank and BDO.

 

 

golfer697, I deal with several banks for their various UITFs including the banks you mentioned but I don't think it's possible to " guarantee" protection of principal in case market is really against the UITFs. If your bank returned your principal last year, even if the NAVPU was lower than the price you bought it at, Dr. Pepper is right in his observation that they guaranteed your principal, which is a no-no for UITFs. That is why I suggested that perhaps when you preterminated last year, the early redemption price was still higher than your original NAVPU, which is why you might have presumed that the penalty is on the income alone. :flowers:

 

I do hope you check with your bank again, sir, because the contact person you are talking to might have sold it incorrectly and that is a cause of concern. The only way UITFs can flourish in this country is if the banks concerned train their people well in selling the product correctly so that clients who buy the UITFs will understand the inherent risks involved but at the same time, will understand that they also have more to gain in the long run.

[wek1012]

how do i know which bank and which type of uitf should i invest? i do have an udnerstnading that which tyype of uitf is dependent on my risk appetite, is this right?

[wek1012]

ask ko lng what things led to do fall of the uitf's navpu around may of last year? do you see another thing like this happening soon?

[valjean]

Just ask for a product brochure from the bank. It will have a description of which fund has a higher risk. But most bank branches are not trained with financial instruments so its difficult to ask in depth questions and get answers.

 

Watch ka na lang din sa bloomberg at msnbc :-)

[Dr_PepPeR]

ask ko lng what things led to do fall of the uitf's navpu around may of last year? do you see another thing like this happening soon?

 

MONETARY BOARD REJECTS PROPOSAL TO SUSPEND SALE, THOUGH BSP, BTr moving on UITF By Jun Vallecera Reporter

 

THE Bangko Sentral ng Pilipinas has vowed to restore order in the panic-stricken unit investment trust fund (UITF) market where investors jostle to exit from the P230-billion business as fast as their fund managers would let them

 

While conceding that intervention was an option, the central bank’s policy-setting board stopped short, though, of taking the drastic step of suspending the sale of UITFs. A senior monetary official said intervention was “an option” that, when it comes, could take the form of an open market operation (OMO) just like they do at the local currencies market. “We may do just that,” the official, requesting anonymity, said on Friday.

 

Private banking sources claimed the Bureau of Treasury had intervened on Friday, gobbling up what the market “foolishly” let go in their panic that their investments no longer yielded returns reaching as high as 21 percent only recently. National Treasurer Omar Cruz declined to comment on the matter.

 

OMO, as regulators refer to the term, essentially involves the buying or selling of government securities in this case and is one of several monetary tools at their disposal. “The BSP does not buck the market but we are sensitive to volatility,” the official said, frustrated that a well-designed product as the UITF still falls victim to stress arising from the shortsightedness of some quarters.

 

There had been calls for the BSP to take the drastic step of suspending the sale of UITFs, but the policy-making monetary board rejected the proposal. According to one official who requested anonymity, the UITF bond market is at its core a market for government securities whose main driver is the movement of interest rates. “Therefore, pricing is a function of volatility,” he noted.

 

UITFs sold like proverbial hotcakes in recent months on account of the heightening confidence in the fiscal sector and its ability to balance the budget over the near term. Bond prices went up as interest rates retreated until more recent data, particularly from the large US markets, indicated that the long party may soon be over. Indications the US Federal Open Market Committee may raise interest rates to curb inflation sparked apprehension the BSP’s seven-man monetary board may also hike its own interest rate structure. “What should have been an orderly retreat from the market became a snap-back in which UITF rates fell sharply as panicky investors sold their holdings.

 

“The selldown, which came all at the same time, caused the rates to fall even lower,” officials said. Private bank officials said now should be the time to buy what the market is selling at fire sale prices. “The market’s fundamentals have been saying prices were to fall, and so it’s a good idea to buy them now when UITF investors are being irrational. “It would have been sensible for them to hold on to their investments, to just sit tight and look at the rates again when things have quieted down,” the officials said.

 

Banco de Oro Commercial Bank owned up on Friday to having been affected by panic-driven withdrawals at its P65-billion unit investment trust fund. But its president, Nestor Tan, said the worst is over for the industry that at one point gave out yields as high as 21 percent. “We have been affected by the mass selldown but I believe the situation is now under control. There is no reason to be concerned [for] your principal,” the bank executive said Friday to assure those who still have money in UITFs.

 

Unlike regular bank deposits, UITF investments do not enjoy coverage from the Philippine Deposit Insurance Corp. and in theory at least, one could lose one’s principal investments just as much as one could enjoy returns as high as 21 percent the business gave as recently as three weeks ago. “Past performance is never an assurance of future returns,” Joey Bermudez, president of China Trust Bank, warned UITF investors weeks ago. BDO’s Tan said their UITF business accounts for roughly half the bank’s total trust fund assets of P130 billion. “There were [significant] losses in net asset value [per share] for the people who left early,” Tan noted.

 

This pertains to the unit value of one’s UITF holdings at the time so called participation units were sold at panic prices two weeks ago, compared to their value at the time the original investment was made.

 

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.

Edited April 10, 2007 by Dr_PepPeR

[RealEstateMan]

I have been reading this thread recently. Currently I am involved in Real Estate Industry for the past two years now and would to venture on other money making schemes other than Real Estate. I am also interested in investing for my future and the problem is that I am afraid to invest in our own Stock Exchange because of the corrupt practices in the past years although the stock are performing in an uptempo mood however I am still a skeptical about this like what happened when Chinese stock go down.

 

But anyways, would like to know more on UITFs which I have been reading in the Entrepreneur Magazine Philippines and also was discussed but not to the extent on Francisco Colayco's book like Pera mo, Palaguin mo or Robert Kiyosaki's Rich Dad, Poor Dad.

Edited April 10, 2007 by RealEstateMan

[dan225]

hello everyone!

 

It's interesting to find this thread in MTC. Anyway, I am an Investment professional in one of the reputable trust institutions and a Finance professor in one of the top universities here in the country. I suggest that we get to organize something similar to Entrepreneur's "Networking Night" where people interested in investing can get together and learn more about investing and managing their personal finances.

 

What do you guys think? Those willing to participate in organizing please express your intentions through this thread or perhaps open an new thread. I am volunteering my services by providing "CONTENT" for the seminar... this will include guest speakers.