Short-Term Investments: SB UITFs

1. What is a UITF?
   A UITF (or Unit Investment Trust Fund) is an open-ended pooled trust fund denominated in pesos or in any acceptable currency, which is operated and administered by a trust entity. Each UITF is governed by a Declaration of Trust (or Plan Rules) which contains the mechanics for investing, operating, and administering the fund. The funds are then invested by a team of professional portfolio managers in various deposits and securities. Individuals and institutions take part in the UITF by purchasing units of participation in the fund.
2. What is the difference between a Mutual Fund and a UITF?   
   • A. Where to invest
     • Mutual Fund (MF): A mutual fund company. They are sold by licensed mutual fund agents.
     • Unit Investment Trust Fund (UITF): Commercial banks, particularly their trust or asset management department. They are sold by certified UITF sales personnel.
   • B. Who regulates these companies
     • MF: Securities and Exchange Commission (SEC)
     • UITF: Bangko Sentral ng Pilipinas (BSP)
   • C. What you are buying in a fund
     • MF: Common shares in the investment company
     • UITF: Units of participation in the UITF
   • D. The price of the fund is expressed in terms of
     • MF: Net Asset Value Per Share (NAVPS)
     • UITF: Net Asset Value Per Unit (NAVPU)
   • E. Investment fees and their usual range
     • MF: sales charge (1% – 5%); redemption fee (0.5% – 3%); investment advisory, distributor and administration fees (1% – 2.5%)
     • UITF: trust fees (0.35% – 1.50%)

    

3. What are the fees involved?
   The trustee shall charge the fund for management fees, taxes and qualified expenses. The trust 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. Note that the taxes are already withheld by the trustee so the NAVPU is already net of fees and taxes.
4. 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 that investments in the fund may go up or down. There are no guarantees of principal nor income. Losses, if any, shall be 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).
5. What does “open-ended pooled trust fund” mean?
   A UITF is an open-ended investment, meaning the fund will continue to be managed with no predefined term or termination date. It is up to the investor to determine how long he wants to keep his funds invested.
6. What does “made available by participation” mean?
   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.
7. How is a fund different from a bank deposit?
   There are several major differences between UITF investments and bank deposits. First, the UITF is a trust product and is managed by the Trust Department of the bank. Second, investments in the UITF are marked to market. Their value can go up or down on a daily basis, depending on the market value of the underlying investments. Third, there is no guaranteed rate of return that the fund will provide. For reference, the fund’s past performance is available. However, it is important to note that past performance is not necessarily indicative of future performance. Fourth, as a result of the daily fluctuations in market value, the principal is not protected. Fifth, the UITF is not covered by PDIC Insurance.
8. 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.
9. How is a UITF valued?
   The UITFs are valued using the mark to market (MTM) method. The term “mark to market” means that the underlying investments of the fund are valued at “fair market value” or the current price at which that asset can be bought or sold. With MTM, investors get an accurate indication of what their units are currently worth. Net Asset Value (NAV) – The Net Asset Value of the fund is the sum total of all the funds’ underlying assets less fees and liabilities. Net Asset Value per Unit (NAVPU) – The NAVPU represents the price per unit of participation. It is computed as the NAV divided by the total number of units of participation in the fund.
10. Which NAVPU is used when I subscribe or redeem?
    When an investor subscribes to the fund, the number of units that he/she will obtain will be based on the NAVPU that will be released at the end of the banking day. Similarly, when an investor redeems, the NAVPU that will be used for computing the redemption proceeds is the NAVPU that will be published at the end of the day.
11. Can a client invest in more than one type of UITF?
    Yes. Clients may diversify their investments across various UITFs as long as the funds are in line with their own investment objective, and they can tolerate the risks involved with the funds.
12. Which type of UITF is suitable for an investor?
    When choosing a UITF, investors should identify their needs and goals and match them against the investment parameters of the product. To determine the client’s suitability for 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 price volatility the client is willing to take; and investment objective, whether the client wants income or capital growth.
13. Is there an indicative or guaranteed rate of return for UITF products?
    No. Since UITFs are subject to the mark to market valuation method, the NAVPU may fluctuate depending on the volatility of the market. The return figures published by Security Bank only represent how the fund has performed in the past. This does not necessarily mean that the fund will give the same return over a similar period of time in the future.
14. How do investors keep track of the value of the UITF investment?
    After subscribing into the UITFs, the client will receive a Confirmation of Participation or COP which states the total number of units that the investor was able to buy, and at what NAVPU those units were bought at. The investor can find out the value of his current investments by multiplying the total number of units he/she holds by the latest available NAVPU, which is published daily on the Security Bank website at https://www.securitybank.com/market-information/navpu/
15. 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.
16. 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.

DISCLOSURES

• THE UNIT INVESTMENT TRUST FUND (UITF) IS A TRUST PRODUCT AND NOT A DEPOSIT ACCOUNT AND IS NOT INSURED OR GOVERNED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC).
• THE UITF IS NOT AN OBLIGATION OF, NOR GUARANTEED, NOR INSURED BY THE TRUST ENTITY OR ITS AFFILIATES OR SUBSIDIARIES.
• DUE TO THE NATURE OF THE INVESTMENTS OF A UITF, THE RETURNS/YIELDS CANNOT BE GUARANTEED. HISTORICAL PERFORMANCE, WHEN PRESENTED, IS PURELY FOR REFERENCE PURPOSES AND IS NOT A GUARANTEE OF SIMILAR FUTURE PERFORMANCE.
• ANY LOSSES AND INCOME ARISING FROM MARKET FLUCTUATIONS AND PRICE VOLATILITY OF THE SECURITIES HELD BY THE UITF, EVEN IF INVESTED IN GOVERNMENT SECURITIES ARE FOR THE ACCOUNT OF THE CLIENT. AS SUCH, THE UNITS OF PARTICIPATION OF THE CLIENT IN THE UITF, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN HIS/HER INITIAL INVESTMENT/CONTRIBUTION.
• THE TRUSTEE IS NOT LIABLE FOR LOSSES UNLESS UPON WILLFUL DEFAULT, BAD FAITH OR GROSS NEGLIGENCE.
• THE INVESTOR MUST READ THE COMPLETE DETAILS OF THE FUND IN THE UITF’S PLAN, MAKE HIS/HER OWN RISK ASSESSMENT, AND WHEN NECESSARY, SEEK AN INDEPENDENT/PROFESSIONAL OPINION BEFORE MAKING AN INVESTMENT.