Like any option out there, Unit Investment Trust Funds (or UITFs) carry some sort of risks and rewards. Legit understanding of these should help you decide whether UITFs are suitable for you or not.

The Good

1. Diversification at a lower cost. In UITFs, your cash will be pooled with others to buy multiple stocks, bonds, or whatever the banks show (or not show) in their prospectus. For example, the portfolio of my BDO Equity Fund includes stocks from SM Investments, Ayala Land, Metro Pacific Investments, PLDT, BPI and Security Bank.

This means that I’m investing (like a boss) with these blue chips for as low as ₱1,500/month. Dope! Meanwhile, if I solo flight and tried to invest by myself in the same companies, ₱1,500 won’t cut it. This amount is just too small. Remember also that if you’re in the long and steady haul, diversification is the way to go. Win-win here.

2. Affordable option. As I detailed my experience in my other blog post, it only cost me ₱11,500 to start my BDO Equity Fund out of scratch. Actually, if you have a BDO account already, you can start with their Easy Investment Plan (EIP) for as low as ₱1,000/month. Opening a UITF account is also easy. Just go to any branch of your preferred bank and talk to the bank officer for details.

3. Professional management. Investing in UITFs means that your cash is managed by a professional fund manager. That guy will be responsible in investing your cash and hopefully, he knows a lot of financial info than you. So if you want to invest in a passive and less hassle way, UITFs may work for you.

4. Security. The Bangko Sentral ng Pilipinas (BSP) monitors these UITFs. That says a lot regarding to the integrity of these funds. Additionally, these banks always maintain its high standards so I believe there’s low chance that they’ll mess up their own investments (or maybe not, LOL).

The (not so) Bad

1. Lower profit caused by over-diversification. Diversifying is good. But sometimes, having too much may limit the profit of the investors. Since diversification aims to spread the risk and minimize loses, ROI also suffers sometimes. As the saying goes, the same knife cuts bread and fingers.

2. Negative gains. There will be times that the fund value will be very low and sometimes negative. This happens especially for equity funds which are very dependent to the volatile stock market. Fret not, because paper losses don’t mean a thing until you convert them to cash. You just have to wait for the stock market to rise again, as it always does.

3. Very limited control on your money. Once you agreed to the bank’s rules, you are basically letting some financially savvy guy take over your money. The investors don’t have much to say how the pooled money is invested.

4. Fees and Taxes. Someone has to pay those guys in suit, right? No free lunch here. Aside from the annual admin fees (ranges from 1 to 1.5%), there are also fees for early redemption and sales charge. In addition, all UITFs are subjected to 20% withholding tax when you decided to cash in your money.

As a financial newbie, I believe that it is not a good idea to head straight to the stock market armed with nothing but sticks and stones. The financially literate Juan will consider many factors before diving head-on. For me, UITFs are a good starting point for newbie investors who plan to invest in stocks later. Maybe you need a place to park your money for a few years while you’re mastering your mad skills in trading stocks. Why not UITFs?

Again, it’s not the perfect investment (nothing will be), but consider it in your options.

KTHXBYE!

P.S. I’m not an endorser of BDO (nor a paid advertiser). What I share here in my blog is based on my personal experience.

P.P.S. Anyway, here are the links for the UITF products offered by other banks. Enjoy shopping!

BPI

Metrobank

RCBC

Security Bank

Landbank