UITF versus Mutual Fund
The major difference is that UITF is a bank product managed by the treasury department. Unlike in mutual fund where you buy shares, you buy investment units in UITF. Therefore you do not have shareholders right when investing in the latter.
Although UITF is a bank product, it is not covered by Philippine Deposit Insurance Corporation (PDIC). This means investors bear the risk of losing their money. Additionally, UITF is not governed by any specific law but since they are offered by the banks, they are still under Philippine banking laws regulated by the Banko Sentral ng Pilipinas (BSP).
On the other hand, mutual funds have strict regulations from Investment Company Act of the Philippines which are highly regulated by the Securities and Exchange Commission (SEC).
So what is a mutual fund? Many people still don’t understand what it is. Well, struggle no more. Mutual Fund is like a cooperative where you put your money together. It does not matter how much each member initially puts in. Some can put in minimum required amount which is P5,000.00 in most cases; and for additional investment, as low as P1,000 pesos. This money is then handled by a Fund Manager who is responsible for fund allocations. The Fund Manager chooses which stocks or bonds to invest on. However, he is limited by certain guidelines of investments as promulgated by Securities and Exchange Commission.
Mutual Funds are offered by investment companies independently registered with SEC. Therefore, when you buy a mutual fund share, you become a shareholder of that company and you acquire the rights of a regular stockholder; including right to vote and right to receive dividends, among others.
Types of Funds
Financial goals and risk appetite will determine which fund is most suitable for an individual. The more popular funds one can get into are:Bond Fund
This fund primarily invests in government-issued securities. It’s like giving your money to be used by the government with the promise that the government will pay it back with interest. In short, this is your money lend to government.
It is considered risk-free because the government has two ways of paying investors: print more money and raise revenues through tax collections. On the average, Bond Fund performs four to six percent a year.
Money market fund
Similar to bond funds, money market fund also has a conservative stance since they invest in fixed income securities. These securities mature in one year or less hence, the term money market. Money market fund performs two percent a year on the average.
Stock fund or equity fund
Equity fund primarily invests in shares of stock of listed companies. The bigger allocation of equities within the portfolio allows the fund to attain a more aggressive growth rate. Thus, this is riskier, more volatile, and can result to either higher gains or high losses. Since equity fund tracks the index, the rise and fall on a daily basis is reason for the volatility of the fund.
In 2008, Philequity Fund, one of more popular mutual funds lost 41 percent. In 2009 however, it recovered and recorded a high of 65 percent! A lot of those who knew how to invest in the mutual funds earned a lot. For the past 16 years though, Philequity Fund grew at an average of 20 percent despite the ups and downs of the market.
Balanced fund
Balanced fund invests in both bonds and equities. It combines the low-risk-low-gain of the bond fund and the high-risk-high-gain of the equity fund.
Instead of having the money allocated on the risky equity funds, or on the conservative bond funds, the money pooled together is invested by the fund manager on both giving investors the best of both funds. Balanced fund performs 12-15 percent on the average.
Today, there are a total of 42 mutual funds listed in the country. 20 of these are bond funds, nine are equity funds, eight are balanced funds while the remaining five are money market funds.
On the other hand, there are 78 UITFs listed in the country. 32 are peso bond funds, 21 are dollar bond funds, 10 are peso money market funds, five dollar money market funds, nine peso equity funds and one dollar equity fund.
Now that we know what mutual funds are, I challenge you now to transform this knowledge to action and reap the harvest later. If you invest on a fund that can earn a rate of 12 percent a year for the next 25 years at P1,000.00 pesos a month, you will be able to accumulate P1.8 million (P105,881 in present value).
Make that P5,000.00 per month and you’ll have P9.4 million after 25 years (P552,939 in present value). So who says, it’s difficult to accumulate millions? Continue investing ten years longer and you’ll accumulate P32 million (P606,064.97 in present value)! The higher the rate of return, the higher your money will grow in the long run to meet your needs for retirement, child education and cash fund.
So there you are! It does not take you much money to accumulate millions. What you just need is the financial literacy how and where to invest; and the discipline to put in small amounts on a regular basis that will soon accumulate to millions.
Now that you know what are pooled funds, don’t delay. Start investing NOW!
So there you are! It does not take you much money to accumulate millions. What you just need is the financial literacy how and where to invest; and the discipline to put in small amounts on a regular basis that will soon accumulate to millions.
Now that you know what are pooled funds, don’t delay. Start investing NOW!
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