The Unit Investment Trust Fund or UITF, is a product which trust licensed
institutions can establish, launch, and operate in accordance with BSP Circular
447, which was issued on Sept. 3, 2004. The regulations were intended to align the
operation of pooled funds under management by trust entities with international
best practices and to ensure differentiation from bank deposits and other direct
liabilities of the financial institution.
To the investing public, a lot of questions come to mind. How do investors benefit
from this product and what are the risks? To provide the market with answers to
all these frequently asked questions and more, SBC – Trust Marketing has come up
with this primer on the UITF’s.
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INVESTOR RISK TOLERANCE
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SB PESO EASE FUND
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SB SECURE PESO FUND
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SB PESO ASSET VARIETY FUND
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SB SECURE DOLLAR FUND
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SB PESO EQUITY FUND
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CONSERVATIVE
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MODERATE
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BALANCED
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MODERATE
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AGGRESSIVE
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"The Safe Nester"
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"The two-way optimist"
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The market cycle resilient"
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"The two-way optimist"
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"The long term investor"
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Investor looks for relatively low flunctuations in the value of the investment
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Investor acknowledges the possibility of some near-term flunctuations in the value
of the investment.
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Aspires for higher yields but could tolerate moderate to higher flunctuations in
the value of the investment
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Acknowledges the possibility of some near-term flunctuations in the value of the
investment
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Investor seeks superior yield but understands the high risks associated with the
investment
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RECOMMENDED INVESTMENT TIME HORIZON
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3-6 months
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6 mos to 1 year
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at least 1 year
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6 months
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between 1 to 3 years
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MINIMUM INVESTMENT
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P 50,000
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P 50,000
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P 100,000
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$ 10,000
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P50,000
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MINIMUM ADDITIONAL PLACEMENT
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P 10,000
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P 10,000
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P 10,000
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$ 1,000
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P10,000
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HOLDING PERIOD
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30 days
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30 days
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90 days
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30 days
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90 days
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STRATEGY
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Maintain SDA positions
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Increase exposure in FXTN and Bonds
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Increase exposure in Equities
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Maintain position in SPO's
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Invest up to 80-90% in the PSE
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TRUST FEES
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1 %
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Disclaimer: Investments in UITFs are trust agreements, not deposit accounts.
They do not have a guaranteed rate of return and are not insured by the Philippine
Deposit Insurance Corporation (PDIC). Any loss or income of the fund is for the
account of the Trustor/Investor. Historical performance, when presented, is purely
for reference and not a guarantee of future results. Charges made against the fund
are in the form of trust fees, taxes and qualified expenses. The Trustee (Security
Bank – Trust Division) is not liable for the losses except upon gross negligence,
fraud or bad faith.
UITFs Frequently Asked Questions
What is a Unit Investment Trust Fund?
A unit investment trust fund (UITF) is an open-ended pooled trust fund denominated
in pesos or any acceptable currency, which is operated and administered by a trust
entity and made available by participation. Each UITF Fund is governed by a Declaration
of Trust (or Plan Rules) which contains the mechanics for investing, operating,
and administering the fund.
What does “open-ended pooled trust fund” mean?
An open-ended trust fund allows clients to invest or redeem their investments at
any time subject to guidelines set forth in the UITF Declaration of Trust. Funds
from various clients with similar investment objectives are pooled together into
one fund, which the trustee invests in various types of securities with the aim
of maximizing returns within reasonable risk levels.
What does “made available by participation” means?
A client invests in a UITF by purchasing units of participation in the fund. The
units of participation represent the investor’s proportionate share in the total
value of the fund. As an investor in the fund, the client does not own any specific
asset of the fund, only a proportionate share in all of the fund’s assets.
At what price may these units of participation be purchased?
Units of participation are made available to investors based on the net asset value
per unit (NAVPU) of the fund for the day. The NAVPU is derived by dividing the fund’s
net asset value (NAV) by the number of outstanding units in the fund. NAV, on the
other hand, is the sum of the market value of the investments of the fund less expenses
such as taxes, fees, and other qualified charges. To determine how many units of
participation a certain amount of investment is equivalent to, simply divide the
amount to be invested by the prevailing NAVPU for the day.
Are all UITF products offered in the market the same?
No. UITF products differ in terms of portfolio mix, minimum investment amount, minimum
holding period, settlement period, and charges. For example, some UITFs are invested
purely in fixed-income securities while others may have investments in equities
or stocks. Each product is governed by a specific Declaration of Trust which contains
these product mechanics. The client should choose a UITF product suitable to his
investment needs.
What are the types of UITFs available in the market the same?
UITFs are established and managed based on a set of investment objectives and strategies,
and these have varying levels of risks and returns. Among the most common types
of funds in the market are the following:
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Fixed income fund. This fund is primarily aimed towards capital preservation.
The investments include government securities, bonds, and other fixed income instruments.
Most of the time, fixed income funds have lower risk exposures and therefore tend
to produce modest returns. Investors should note that purely fixed income funds
are also subject to market volatility depending on the interest rate trends.
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Equity fund. The purpose of this fund is to maximize returns by going into
equities or stock investments. Potentially higher returns may be derived from capital
appreciation of the stock investments and dividend earnings. However, clients investing
in this type of fund should be willing to take risks attached to investing in equities.
A longer investment horizon is recommended in investing in an equity fund.
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Balanced fund. This fund is invested in a mix of equities and fixed income
securities. It is aimed at preserving capital as well as generating additional yields
from potential gains on stock investments.
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Can a client invest in more than one type of UITF?
Yes. Clients may diversify their investments across various UITFs as long as the
mechanics of the fund are suitable to their requirements.
Which type of UITF is suitable to an investor?
When choosing a UITF, you should identify your needs and goals and match them against
the investment parameters of the product. To determine the clients’ suitability
to a fund, the following factors have to be considered: investment capacity, or
the amount available for investment; investment horizon, or how long a client can
stay in the fund; risk profile, or how much risk the client is willing to take;
and investment objective; whether client wants income or capital growth.
Who can invest in a UITF?
Any person, association, corporation, entity, or firm who/which has the legal capacity
to contract or establish a trust may invest in a UITF product.
Is there an indicative or guaranteed rate of return for UITF products?
Since UITFs are subject to the marked-to-market valuation method, the NAVPU may
fluctuate depending on the volatility of the market. As such, indicative rates cannot
be quoted by the trustee. Yields are variable and cannot be guaranteed. Historical
performance of the fund may provide an indication of how well the trustee is managing
the fund, but this is not a guarantee of future performance.
How do investors keep track of the value of the UITF investment?
The NAVPU of the fund is generally made available on a daily basis (or as prescribed
in the Declaration of Trust) at the office of the trustee, its branches or through
the trust entity’s website. To determine the value of the UITF investment, simply
multiply the NAVPU by the number of units of participation acquired.
How much will an investor get when the UITF investment is redeemed?
The investor can calculate the proceeds of his UITF investment by simply multiplying
the number of units being redeemed by the applicable NAVPU for the day. Generally,
the NAVPU is already net of the trust fees, taxes, and qualified charges. However,
there may be additional charges to the client such as early withdrawal charges in
cases where the client redeems his UITF investment prior to the completion of the
minimum holding period required by the trustee.
How does a participant determine how much he earned from the UITF?
The difference between the value of the units of participation at the time of purchase
and the value at the time the units are redeemed determines how much an investor
earned from the UITF investment. As the fund value increases, each participant earns
more. Also, the longer a client stays invested in the fund, the better his chances
of earning more since the underlying investment outlets become less prone to market
volatility over time.
When does the investor get the proceeds of the UITF investment?
Payment to the investor will depend on the settlement period prescribed by the trustee.
This may vary depending on the nature and settlement convention of the investments
of the UITF product.
In what instruments can a trustee invest the fund?
The character and kind of investments which may be made by the trustee depend on
the investment parameters set forth in the UITF Declaration of Trust or Plan Rules.
BSP Regulations, however, prescribe that UITF fund investments shall be limited
to bank deposits, securities issued by or guaranteed by the Philippine government
or the BSP, tradable securities issued by the government of a foreign country, any
political subdivision of a foreign country or any supranational entity, exchange
listed securities, marketable instruments that are traded in an organized exchange,
loans traded in an organized market, such other tradable investments as the BSP
may allow.
How will the investor know where the fund is invested?
A list of prospective and outstanding investment outlets of the fund shall be made
available to the UITF clients. The list of investment outlets shall be updated quarterly.
How can an investor compare the performance of the trustee versus other trust entities?
All trust entities offering UITF products are required to publish the fund’s prevailing
NAVPU as well as the year-on-year and the year-to-date return on investment in major
dailies at least once a week. The investor should, however, compare performance
of products with similar investment parameters for a more objective evaluation.
How much do trustees charge UITF investors?
The trustee shall charge the fund for management fees, taxes and qualified expenses.
The management fee shall differ for each type of fund and will cover the costs of
investment research, management, marketing and routine administrative expenses of
the trustee.
What are the risks of investing in a UITF?
Because the assets of the UITF are valued based on the prevailing market price,
there is a possibility of incurring losses in the UITF if the client withdraws in
a scenario of generally declining market prices. Clients, however, may opt to defer
their withdrawals until market conditions become more favorable. Being a trust product,
there is no guaranty on the principal and income of the investments and losses,
if any, shall for the risk of the UITF investors. UITFs are governed by BSP regulations
but are not deposit products, hence are not covered by the Philippine Deposit Insurance
Corporation (PDIC).
Why should one invest in a UITF?
Investors in the UITFs can avail of the following benefits:
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Diversification. By participating in a UITF, risks are spread out across
the various investments held by the pooled trust fund. Diversification comes in
the form of various types of investments, issuers, and tenors. UITFs are required
to observe its exposure in a single entity and its related parties to 15% of the
market value of the fund, except in the case of government securities.
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Liquidity. While it is advisable to stay invested in the UITF for a longer
period of time, clients can redeem units of participation at any time. The fund
will not have difficulty redeeming such units of participation because UITF investments
are limited to marketable or tradable securities.
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Affordability UITFs generally have low minimum investment requirements. Additional
investments may be made in tranches as funds become available to the client.
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Better earnings potential. Greater earnings potential is achieved without
having to invest large sums of money. There are opportunities for potentially higher
returns due to possible marked-to-market gains on top of accrued income from investments.
UITF provide access to financial instruments not readily available to retail investors.
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Exempt from reserve requirements. UITFs are not subject to reserve requirements
imposed on bank deposits.
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Professional fund management. Participating in a UITF allows clients to gain
access to the expertise and services of seasoned fund managers who are able to actively
monitor the markets for possible investment opportunities.
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Transparency. Trust entities are required to publish the UITF NAVPUs at least
weekly, allowing you to compare investment performance of various fund managers.
Each UITF is subject to a separate annual audit by an independent auditor acceptable
to the BSP, the results of which may be made available to investors.
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Regulated product. The management and administration of UITFs are governed
by the Bangko Sentral ng Pilipinas.
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