My very first financial decision after building my emergency fund came up in mid-2013. It was to invest in a UITF (which I detailed in this post). That’s the moment when I first dipped my twinkly newbie toes on the metaphorical waters of the financial market (and yeah, I needed to sound fancy). I felt scared and excited at the same time. But looking back now, I still see that this was the best option for me at that time. Today, I’ll be introducing UITFs and why it should be a part of your portfolio too going forward.

What are UITFs

UITF, or Unit Investment Trust Fund, is an investment vehicle offered by banks where your money is pooled with the money from other investors into a single fund. This pool of cash is handled by the “fund manager”, and he will be in charge on what happens to your money. Sounds scary that one guy controls all this money, right? Well, technically, if you put some cash in your saving’s account anyway, you are also allowing the bank to use that money outright for their financial ventures. I’m saying that you’re risking your money into the same banana banking institution, so why not leverage this risk?

Most banks offer different types of UITFs depending on the risk appetite of the investor. They have portfolios containing equities (stocks), fixed income securities (treasury bills and high yield savings accounts), bonds (both government and corporate), or a combination of each. You can check my blog post regarding the different type of UITFs here.

Where are they

UITFs are commodities of banking institutions. Therefore, you should always see them in your banks. That’s not the case most of the time! There are few ads displaying UITFs, which is one of the reasons why the average Juan doesn’t care (or have any idea) about it. Advertisements showing car and housing loans and credit cards dominate the media, and for a good reason. Well, not for us but for the banks (i.e. capitalism).

So anyway, you can approach the banking officer (or manager) in your bank and ask about their UITF products. Hopefully, they can explain to you some detailed information regarding their products.

Why invest in UITFs

The gist is that UITFs offer an easy-to-access and cheap option to diversify your investments with less hassle. Not yet convinced? I wrote a separate entry discussing the pros (and cons)of investing in UITFs.

How it works

In UITFs (and mutual funds), the price of each “share” is called the Net Asset Value per Unit (or NAVPU). This NAVPU is similar to the stock price of a company because both values determine the current price tag of the investment. Every time you put money into your UITFs, the bank automatically calculates how many participating units (financially correct term) you have purchased at that time. When the time comes and you want to withdraw your money, the bank would just multiply the total participating units that you have with the current NAVPU for the day.

For example, if you invested your ₱50,000.00 in the BDO Equity Fund way back in June 2012 when the NAVPU was 319.6591, the fund value of that now should be ₱70,682.52. Of course, this is the gross value and tax is not yet accounted here. That’s an annualized ROI of 7.17%. Super nice!

UITFs are a good place for an average Juan to start his financial journey. Yes, you can find better investments with a higher ROI. But considering that you did it in a semi-passive manner I think it’s a good deal overall. After that, he/she can expand to other investment instruments available elsewhere. And believe me, there’s a ton out there!

Ciao!