Understanding Unit Investment Trust Funds (UITFs): A Quick Guide for New Investors

As inflation squeezes household budgets and economic uncertainties loom, more Filipinos are searching for better ways to grow their money. Unit Investment Trust Funds (UITFs) offer an accessible entry point into investments that can start your investment journey without putting a huge strain on your budget.

This guide will explain UITFs and how they can help you achieve your investment goals, regardless of your starting point.

Understanding Unit Investment Trust Funds

What is a UITF?

What are Unit Investment Trust Funds? UITFs are open-ended pooled of funds created from contributions by various investors. These funds are managed and operated by a trust entity, which invests in diversified portfolios of stocks, bonds, and money market instruments, accessible through units of participation.

The value of these units, known as the Net Asset Value Per Unit (NAVPU), fluctuates daily based on the performance of the underlying investments, offering the potential for higher returns than traditional savings accounts and allowing your money to grow over time.

Pros and cons of UITFs

Is UITF a good investment to start with? For beginners with limited investment experience or those hesitant to dive into investing, UITFs offer an excellent entry point. Their professionally managed structure removes the complexity of selecting individual securities while providing access to diversified portfolios that would otherwise require significant capital to build. Here’s why UITFs can be an ideal starting investment:

Advantages of a UITF Investment

• Professional Fund Management: Experienced fund managers make investment decisions based on market research.
• Diversification: Gain access to various assets, reducing risk.
• Convenience: Invest anytime, anywhere, through online channels
• Accessibility: You can start investing with a minimum amount of PHP 1,000 for select funds, and PHP 10,000 for most funds.
• Liquidity: Redemptions can occur as early as the next banking day.
• Regulated environment: UITFs are overseen by the Bangko Sentral ng Pilipinas.

Understanding the downsides

• Market risk: Fund NAVPU fluctuates up or down depending on market conditions.
• UITFs are not insured by PDIC: UITFs are not deposit products, and their values fluctuate based on market performance.
• Returns are not guaranteed: Unlike time deposits, UITFs do not offer guaranteed returns.

Types of UITFs: Know What UITF Suits You Best

Understanding the different types of UITFs is crucial for selecting one that aligns with your risk tolerance, investment horizon, and financial objectives:

• Conservative investor

A conservative investor seeks to avoid losses in their total investment value and prefers products with minimal risk while achieving slightly better returns than savings accounts, with a short investment horizon.

Recommended Product: Money Market Funds

• Moderate investor

A moderate investor seeks higher returns than traditional deposits but avoids high-risk assets like stocks. They have a medium to long-term horizon and accept some short-term losses for better long-term gains.

Recommended UITF Product: Fixed Income/Bond Funds 

• Aggressive investor

An aggressive investor prioritizes growth and accepts market volatility and potential losses for higher long-term returns. They recognize that investing in high-risk assets can lead to significant capital appreciation over time.

Recommended UITF Product: Balanced and Equity Funds

How to start UITF investing

1. Choose a trust institution: Select a reputable bank like Metrobank or platforms like Earnest that offer various UITF options. You can create an account to start investing through Metrobank Online.
2. Complete suitability risk assessment: Determine your risk profile through a client suitability assessment.
3. Select a UITF: Choose a fund that matches your risk tolerance, goals, and time horizon.
4. Make your investment: You can start with the minimum amount and then consider setting up regular contributions later.
5. Track and adjust: Regularly review your investment and make changes as needed to stay aligned with your goals.

Effective UITF investment strategies

Investing in UITFs is also about implementing disciplined strategies that optimize growth and minimize risk over time. Here are time-tested approaches that successful UITF investors follow:

• Practice budgeting rules: The 50-30-20 rule allocates 50% of income to needs, 30% to wants, and 20% to savings and investments. For tighter budgets, consider the 70-20-10 ratio.
• Diversify your UITF investments: Spread investments across different UITF types based on your financial goals, risk tolerance and time horizon.
• Use cost averaging: Invest fixed amounts regularly regardless of market conditions to reduce volatility impact and eliminate market timing concerns.
• Invest for long-term growth potential:  Investing during downturns can be strategic for long-term investors. Historically, markets tend to recover over time, and those who invest during low points may benefit significantly when the market rebounds.

Stay informed about UITF investments

Stay updated on market trends, attend financial seminars, follow reputable advisors, and continue learning about what UITFs are and how they can benefit your financial journey.

Successful UITF investing requires consistency, patience, and ongoing education about your investment options. Start small, be regular with your investments, and watch your money grow over time. You can also check out Metrobank’s diverse investment options which include professionally managed funds and access to global markets. You can also go to FirstMetroSec to access investment options including stocks, bonds, REITs, and pooled funds.

Go to lifebanking.ph to read more guides about growing your money and securing your future.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Financial decisions should be based on your own research and personal circumstances. Consider consulting with a qualified professional before making any financial decisions.