How Do You Make Money From UITF Investing?
This article is posted under Investing, Personal Finance.
I consider UITF’s as one of the most basic and simplest investment product out there.
Surprisingly, many are not aware what it is exactly, and how one makes money from it.
That’s why for today, I’m providing a basic explanation of what UITF means.
I will tell you how how it works; how you make money from it; and of course, where to go if you want to invest in UITF’s.
So the first question that we should answer is, what does UITF stand for?
It’s an acronym for Unit Investment Trust Fund.
First, I want you to focus on the word “FUND” because that’s what it is basically – a pool of money from many individuals.
Who gets the pool of money? The bank… or more specifically – the trust, investment or treasury department of the bank.
A UITF is an investment product that most, if not all, commercial banks offer. And if you want to invest in a unit investment trust fund, then all you have to do is to go to a bank.
UITF is a generic term and banks often call them by many different names. One thing that they all have in common is that they have the word “FUND” at the end.
You can read through some examples from my past articles: Here are the investment funds of BPI and here are the UITF products of BDO.
— Pause reading here and let it all sink in first. —
Moving on… when you invest in a UITF, you are actually buying “units” or shares of the fund, that’s why there’s the word “UNIT” in UITF.
And the price of one unit is often called NAVPU or Net Asset Value Per Unit.
So if the NAVPU of a UITF is at P1.50 and you invest P30,000 into the fund, then you will get 20,000 units of the fund in exchange for the money you gave to the bank.
When you invest in a UITF, the bank will (and should) give you a certificate that states exactly how many units you own. And in our example, your certificate will state that you own 20,000 units.
— So far so good? Read it again if it’s unclear. —
What happens next now?
Well the bank, specifically the fund’s manager (or managers), will use your money and invest it in “more complicated” investment products like government securities, bonds, the stock market and many others.
That’s why there are many kinds of UITF; and it’s name usually indicates where the money is being invested by the fund manager.
For example, the money pooled into BPI’s Short Term Fund is normally invested in short-term government securities, money market securities, and other highly marketable fixed-income instruments.
Meanwhile, the money pooled into BDO’s Equity Fund is normally invested in a diverse selection of stock exchange-listed companies.
How do you earn from UITF?
The fund manager (who has everyone’s money) will now do his (or her) best to make the money grow by making good and sound investing decisions.
An equity fund manager, for example, will constantly study and monitor trends in the stock market so that the pool of money from the fund that is invested in it grows.
At the end of the day, if the market went well and the fund manager was able to make good decisions, then the net value of the fund will increase.
On the other hand, if the market went down, and the fund manager was not able to cut investment losses, then the net value of the fund will decrease.
How do you know if the fund manager of your UITF had a “good day” or a “bad day”?
Check the price of the NAVPU. The change from yesterday’s price will indicate if it was a good day or a bad day for the fund. And note that the NAVPU changes everyday!
If the NAVPU yesterday was P1.50 and today it became P1.51 – then the market was good. But if the NAVPU today went down to only P1.49 – then the market was bad.
— The moment you’ve been waiting for… —
Now this is how you earn (or lose money) from UITF investments…
Remember that your money is in the fund, and what you have in your possession is just a certificate that says you own 20,000 units.
When the time comes that you need the money, you can just go to the bank and say that you will redeem your investment.
This is basically saying that you want to give the 20,000 units back to the bank and you want to take your money out of the fund. When you do this, the bank cannot say “No” and they are obliged to exchange the units for cash based on the current NAVPU.
So let’s say after one year, the NAVPU has become P1.65. If you redeem your investment at this point, then you will receive P33,000 – which means you just earned P3,000 by investing P30,000 for one year in the UITF.
However, if the NAVPU after one year went down to P1.40 and you redeem your investment because you really, really need the money, then you will only receive P28,000 – which means you just lost P2,000.
And that’s how UITF investing works!
If you understood all that, then you should know that mutual funds basically work the same way.
Of course, this is a very simplified version and there will be fees, documentary stamps, taxes and specific bank terms and conditions that you should be aware of before you invest in UITF’s.
A good place to start reading is this article where I compared mutual funds vs unit investment trust funds.
I guess that’s it!
I hope I was able to help you understand UITF’s better. If you have any questions, then don’t hesitate to ask it through the comments section below and I’ll try my best to answer them.
Lastly, if you want to learn more about investing and discover how other investment products work, then please subscribe below:
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Welcome to my blog, Ready To Be Rich.
Hi, my name is Fitz and this is my blog.
Thanks! I love these types of articles.
I knew some of these already but the part about MF’s not being taxed is an eye-opener. I need to “recalibrate” my next round of investments!
Fritz, you are an angel by writing this article! When I started out, it was the fund manager who explained this to me. Out of kindness and gratitude, I had to avail the products he was offering. Not that I regretted investing with him, but I wish I had better reasons on availing his products. I haven’t redeemed my UITF investments till now.
Hi Fitz, thanks so much for this post. Do you think it is a good idea for me to leave my money untouched in a uitf for several years? I’m considering this as a retirement fund. Any suggestions will be appreciated. Thanks in advance!
thanks Fitz! I got a clearer view now with bank investments!
Thanks everyone for the comments.
@lioncityrebel
Can you share how long have you had your UITF investments and by how much percentage has it already grown? It would be interesting to know a real-life example.
As for me, I have a balanced fund which I’ve been cost-averaging for more than three years now, and today, the value of my investment is around 60% up. A 20% average increase every year isn’t very bad, right?!
@Gabriel
I think it’s a good idea, but make sure it’s in a bond or equity fund because these UITF grow bigger than inflation rates, which is what you want primarily.
Also, rather than investing all your extra money in one go, it’s better to do small, same-amount, regular-period investments (P1,000 every month for example). This strategy is called cost-averaging – which is good to do for long-term investing.
what is the difference of buying units direct from the bank and buying a variable plan from sunlife which is also managed by fund managers ??
Hi edith, they’re similar but not the same… the variable plan from Sunlife is no longer a UITF, strictly speaking. It’s already a different kind of investment – a mutual fund, or perhaps a VUL investment.
Hi Fitz -
Nice article! Thank you for making it so easy to digest
May I request that you also write about the “other types” of investments such as the VUL or the kind of things offered by Sunlife?
I checked the details from their website and I’m having a hard time getting a clear view on how they work as investment instruments.
It’s different when you’re the one explaining. I guess I just got used to reading your articles. Brief but comprehensive.
Thanks and more power!
Hi Fitz. Is the ‘balanced fund which you cost average’ the same as the EIP (easy investment program) offered by Citiseconline? Is citiseconline reliable? If yes, and if i also invest with their peso cost averaging product, for how long should i invest? Is 5k/ month enough? Will wait for your advice. Thanks!
Hi Richie,
Citiseconline is a stock market broker and their EIP is for cost averaging on specific stock market shares in the Philippines.
Banco de Oro is the one that offers EIP for UITF, they offer a wide range of funds, including the balanced fund. The mechanic is similar to Citiseconline’s EIP, they auto debit your decided amount from your savings account and buys units of your chosen fund every month (or whatever period you decide) – which allows you to do cost averaging.
EIP (easy investment plan) is just a term for the program, and other banks have similar products that allow you to cost average UITFs.
For example, Bank of the Philippine Islands (BPI) has the RSP or Regular Subscription Plan, which is exactly the same as BDO’s EIP.
If your bank doesn’t have this kind of program, then you can always ask your branch manager if it’s possible to create this automatic investment mechanic for your account.
Lastly, if all else “fails”, you can always do it by yourself and manually invest a fixed amount on a regular basis in a UITF (or other investment) product.
Hi Erwin,
Sun Life offers mutual fund products, which is similar to UITF. You can check out my previous post on those here:
Sun Life Mutual Funds
If you need clarification on any of those, just leave a comment there or send me an email.
Thanks Fitz for the prompt reply.
If I may ask, where do you invest re your balanced fund?
If i can afford 5k per month, where do you suggest i invest? I can moderately take a risk.
Among BDO, BPI and Citiseconline, where do you suggest i invest?
Thanks again for this great blog…great help for newbies like me…
Hi Richie, I’m with BDO and BPI, specifically because both have cost-averaging programs which makes investing automatic for me.
My suggestion is to invest in the bank where you already have an account. And let their wealth management officer determine the right investment for you, i.e. take their risk assessment test.
Consider Citiseconline (stock market investing) if you can already afford long-term high risks.
sir ano pong application ang ginamit nyo para dun sa illustration?
Hi Vic, “Paper” by Fifty-Three for the iPad from the Apple App Market.
Hi Everyone!
I’ve explored UITF investing about 6 years back, and I’m convinced the adage “don’t invest in the banks but rather where the banks invest” to be true. It’s truly investment (generally more than 10%pa roi) compared to savings which earns basically nothing because of inflation (less than 10% roi). Especially for Equity Fund which is basically traded in stocks, the yield is indeed substantial during bull market but you need longer waiting time till the market cyclically recovers during bear market and still comparatively enjoys bigger margin.
We need to widely educate everyone of this better vehicle to help the investing pinoys gain more and roll over such gain for more creative investments for the good of our economy. Problem seems to be that since this kind of investment is not being clearly marketed even by bank employees, we are naturally afraid of things we don’t understand in the first place. For me, this investment is just like the tv set. Its complicated inside but outside its easy to operate. The analytical ones wont dare until its not clear to them. But only few risk takers are able to enjoy the fruits of this kind of investment. We can be of help to stimulate healthy discussion and demystify things out.
hello fitz. thank ypu fpr this well explained article. anyway, i’m still learning about investments flow and such terminologies. i am new and willing to learn. can u give me some tips to invests as a beginner on this field. and like how much should i put in and where is the best to invest it. THANKS!!!….
Fitz,
which do you think is good for short term and long term? Balanced Fund or Equity Fund?
@tweeteriyaki
As a beginning investor, I encourage that you first practice saving and building an emergency fund. Then invest a portion of your emergency fund in a time deposit.
After that, it will all depend on your situation, but I always advise that one should invest small amounts regularly for long periods.
@UITF
Balanced funds are good for medium term, while Equity is always long term. For short term, try Money Market or other moderately conservative funds.
Fitz,
I’ve been a lurker of your blog for quite some time now.
The wife and I decided to start investing and we already have an emergency fund on our savings account and a little extra.
Do we really need to put a portion of it on a time deposit or can we go straight on UITF or Mutual Funds. I would appreciate it if you could explain it as well, as I am still learning the ins and out of investment.
Also, any good book you can recommend?
Thanks in advance.
Hi Fitz! Hi everyone!
Maybe I could help others here by sharing my experience.
After saving up for my emergency fund, I went straight to investing in UITFs – specifically Equity Fund. Investing is really easy coz you do not have to manage anything. Just make sure that the money you will place in this kind of fund is money that you won’t be needing for the short term so that you will optimize your gains from it.
What is important is you start investing now, so you can ride out the ups and downs of the market. So far, since september 2011, my equity funds are now up by 18%, if I decide to withdraw today.
Hi ada,
Thanks for replying. I managed to find the answer on my question myself
If I may answer my own question re: time deposits
The reason Fitz suggested to put a portion of the emergency fund to time deposit is because, it will be a waste to keep such amount on savings account, wherein it is only earning cents. Time deposit doesn’t have the interest rate to cover the inflation but it’s better than a normal savings account and you can withdraw it anytime the need arise.
What confused me before was the thought that instead of putting a portion of my emergency fund to time deposit, I will put it directly to investment. I didn’t realize before that I should not touch my emergency fund, and the best way to keep it while earning a little more the savings account is through time deposits.
Fitz – now for my other question. If I have 50k in excess of my emergency fund, should I put it all in UITF in one go then just add say 10k per month to it or should I already start diversifying and invest small portions on different investment funds and different banks?
Thanks!
@ynos
Sorry for the late reply, but it’s good that you found the answer to your first question.
With your second concern, my answer would be to first define your investment objective and then find the right product that will fulfill that goal.
Assuming that this is for your retirement, then I’d suggest doing cost averaging and investing a fixed small amount of that P50k regularly on one product, probably an equity fund (UITF or mutual fund).
For UITF, there are banks that offer small starting investments (around P10k) and even smaller additional contributions (around P1k) to an existing investment. Moreover, I know both BPI and BDO has a service that allow you to automatically do this.
For BPI, inquire about the regular subscription plan. For BDO, there’s the easy investment plan.
Anwyay, my advise is don’t do it in one go because among other things, cost averaging makes you more aware of the need to regularly invest over your lifetime.
As for diversification, I suggest that you invest that 50k first on one product, then continue saving and when you have another 50k, then that’s the time you invest in a new investment product.
@ada
Thank you for sharing your story. 18% is incredible!
Hi Fitz!
Now that I mentioned 18% gain, should I cash in on those UITFs now, especially since the market is very volatile these days? then I could re-invest the same through cost averaging.
Hi ada, did you do a one time investment? If so, then I’d advise yes, redeem them, then do cost averaging. But if it’s already a cost averaging scheme, then just leave it as it is.
Please note that this is just my personal recommendation and should not be taken as a professional financial advise. Thank you.
Thanks Fitz,
Will going to do as you suggest. I’m just weighing my options at the moment. I already inquired with BPI, will try to inquire with BDO sometime this week.
Thanks again.
hi guys,
fitz said it right. before you invest, try to think first what your goal is. all investments should have accompanying goals/purposes or else you would not do it “diligently”. also remember to always have an emergency fund. it should be at least equal to 6 mos worth of salary. UITF is good. i axally have the balanced fund with BDO. Variable Life is even better, for me that is. i have an equity fund with Philamlife and another balanced fund with Sunlife. also, dont be afraid to invest small amounts at first. what is important is you started investing. whatever you invest in, it should have the 4 cornerstones to be solid. Safety.Growth.Tax advantaged.Protection.
and pahabol ko lang po….
world inflation is hovering around 5-6% annually…
So?…never put your money in a financial instrument lower than that..or else bababa ung purchasing power ng pera mo.
just my 5 cents worth.
thank you for this article.. now i have an idea how does it works. it really helps me on my job since im just new in this career.can you help me how will i handle this questions if someone ask you what is the minimum rate or interest? and this invesment is not guaranteed.. thank you
Hi Fitz,
Is compounding applicable to UITF/Mutual Funds? If so, how?
I am thinking, If I am already doing cost averaging, should I just left my money on a UITF/Mutual Fund or should I redeem a portion amounting to the interest and re-invest them from time to time?
Thanks.
Hi ynos, theoretically speaking compounding does not happen in UITF / Mutual Fund investments if you strictly do cost averaging.
To compound your income, you have to be an active investor – which means doing what you suggested, redeeming your interest income and re-investing it.
Personally, I don’t do this because I don’t want to dilute my price average – plus, instead of reinvesting my interest income – I usually just invest more money.
Hi Fitz. Thanks for your advice, now I have already started with investing.
Next, for diversification, I would like to invest in either stock market or mutual fund. Which of the 2 do you recommend?
If in stock market, is citiseconline reliable? Any other reco?
If mutual fund, do you recommend fami?
Will wait for your reply.
Thanks again.
Hi Richie, Citiseconline is reliable for me, they’re actually my stock broker. And one thing I like about them is their EIP program. If you need help, you can email me and I’ll give you the contact number of my account manager there.
As for FAMI, I also believe they’re reliable. A couple of friends have investments with them which have been doing well, last time I asked.
Choosing either one would be a good decision in my opinion. Or if you have the funds, why not just invest in both.
Thanks Fitz for the quick reply.
Yes please, I’d like to be enlightened some more on COL’s EIP. Maybe your acct mgr can help me. You can give my email ad.
If I can only afford one between stock market and mutual fund now, which would you recommend for me? (I already have a uitf investment. I plan to invest 5k per month for 5yrs or more.)
Will wait for your advice Fitz. Thanks again.
Hi ,Fitz, Iam an avid reader of your blog Ready to be Rich.I did open an EIP account recently with BDO(cost averaging) and still learning with the help of your articles.Thank you and still waiting for more UITF blogs.I will open an account with CITISECONLINE,I understand that you have an account manager at CITISEC ,if you could refer my application to him,much easier for me to have it done ,thank you again and will seriously invest and take any risk than not taking any risk at all.
Hi Fitz. Resending…waiting for your reply please…
____________________________________________________________
Richie on August 8th, 2012 at 8:58 pm
Thanks Fitz for the quick reply.
Yes please, I’d like to be enlightened some more on COL’s EIP. Maybe your acct mgr can help me. You can give my email ad.
If I can only afford one between stock market and mutual fund now, which would you recommend for me? (I already have a uitf investment. I plan to invest 5k per month for 5yrs or more.)
Will wait for your advice Fitz. Thanks again.
hello. i just wanna ask kung ano po ang usual cases/problems regarding investing in uitf? what would be the type of uitf product for you? thank you! God bless.
I’ve been reading alot of your post for a couple of weeks now. I just want to say thank you for explaining it well. More power to you.
Hi Fritz,
I am new to this and trying to understand and I read a lot about this and need more clarification about Cost-Averaging.. What is cost averaging means e.g. from BDO EIP?
They have Balanced Fund with minimum investment of 10,000 and then 1000 per month EIP. Does it mean the 1000 will earn as well? Could you help to explain?
Thank you.
Hi Jeffrey, you need P10,000 to open an account, but you only need P1,000 to add to that investment via EIP.
Yes, that P1,000 already has the potential to earn… but by BDO policy, you will only be able to get your investment certificate every P!0,000 worth of units.
When you do, you’ll notice that the unit prices are adjusted according to the time when each P1,000 was deducted.
Thank you Fritz. But 10,000 to open an account is already the invested money, isn’t it? So it is already worth of 10,000 units?
Also, if I earn, it means that my units will accumulate and if I loose my units will loose/decrease as well? And then after a while, if I accumulated lot of units, I can redeem it and the price is based on theNAVpu on that day when i redeem?
Is that how it works?
Thank you.
Thank you Fritz. But 10,000 to open an account is already the invested money, isn’t it? So it is already worth of 10,000 units (let say NAVpu is 1.00)?
Also, if I earn, it means that my units will accumulate and if I loose my units will loose/decrease as well? And then after a while, if I accumulated lot of units, I can redeem it and the price is based on theNAVpu on that day when i redeem?
How does it affect daily NAVpu if I will only know if I loose or earn when I redeem my units?
Is that how it works?
thank you for a very informative article. I’m in my early 20s and thinking of starting to invest, but I have no idea how!
Hi Jeffery.
Yes, if the NAVPU is 1.00, then investing P10,000 means you will receive 10,000 units.
Over time, the value of each unit will increase and decrease. But as an investor, you will always have 10,000 units – that will not change.
Let’s say after a year, the NAVPU has become 1.20. Then that means, when you redeem your money, the exchange rate that will be applied to your 10,000 units will be 1.20 – which means you will receive P12,000.
NAVPU changes everyday. When you invest (buy units), your certificate will tell you the price at which you bought.
Then you simply have to ask the bank the current NAVPU price, if it’s higher than the price at which you bought it, then you’ll make money.
If it’s less than that, then you simply have to wait until it does so you won’t have to lose money.
The “hard part” is really the waiting, because some people fail to save an emergency fund and they need to redeem their units at a loss because they need money.
Historically, UITFs earn money in the long run. Indeed, there will be bad times, when prices are down. But eventually, they all recover after a year or two.
That’s also one reason why you should never invest in one go. And just distribute your money and invest small amounts over a long period of time, so you can take advantage of cost averaging.
Thanks Fitz. I just sent my application to BDO, with initial of Php10,000 and monthly of php2,000 to Equity Fund as I plan to take the money when I back to the Philippines, maybe in 5 or 10 years or worst case in 3 years. Do you think its small amount? Or if I decide to increase the amount for EIP eventually, is it advisable?
Also I know that BDO issues only COP if thevalue reaches 10,000. So if I have 2,000 monthly and it reaches 10,000 does it mean I will get another COP. And then when I reach again another 10,000 it will be another COP? So Im getting multiple COP?
Thank you.
Hi Jeffery. There is no small or big amount when it comes to investing, only the amount which you can afford comfortably.
Of course, when money is good, you can increase that amount. And when things are tight, you can choose to decrease it.
And yes, you’ll get multiple COPs. If you’re out of the country, just advise BDO to safe keep it.
Lastly, congratulations on being an investor!
Medyo mahal po ngayon ang NAVpu Equity Fund. Ok lang po ba na nag invest na ko ngayon? Kasi medyo worried langako dahil mas maganda sana bumili ng units kapag mas mababa ang market performance po di ba?
Which one is better, once a month or twice a month EIP?
Thanks.
Hi Jeffrey. For me, once a month is good enough. And just invest small amounts, so you can cost average your investment.
Actually, in one UITF of mine, I only invest quarterly.
The most important thing to remember is to invest regularly and invest small fixed amounts. How frequent you invest is not so important, as long as you do it consistently.
Don’t worry about the price. For now, sa tingin mo “medyo mahal”, pero come back after 6 months, you’ll see na “mas mahal” pa sha – so sayang yung time na naghintay ka bumaba yung price.
Of course, NAVpu prices will go up and down. If you have the knowledge and skills to time the market, then you should use it to earn more from your investments.
But if you’d rather invest passively, and focus more on other things, then your safest option is to do cost averaging and start now, and invest regularly, over a loooong period of time.
Kung mag invest din kaya ako sa BPI Balanced Fund naman or maybe BDO again Balance Fund naman? Is it good idea? Thank you.
hi fitz…….you really are good in financing
anu ba ibig sabhin ng cost averaging and how to do it..para ma anticipate mo when to redeem your uitf or not.
greetings mr. fitz:
1. From time to time I’m checking the navpu between BDO & Metrobank’s Dollar Money Market Fund from http://www.piloncitos.com and with their respective websites. In Oct 31 2012, The YTD Return% of BDO=1.7168% & Metro=1.6386%
1.1. So does it mean that BDO performed better?
1.2. The Navpu of BDO = $130.302 & Metro = $1.25, Why so different? Please explain…I’m confused on how to interpret this…
2. Is it better to invest larger amounts to LOW Risk Funds (6months to 1yr maturity) and smaller amounts to Aggressive Funds(5yrs)? Assuming you let both of your invest stay for 5yrs…
3. I’m trying to compare BDO, BPI, Metrobank Dollar UITFs, all of them seem to be doing great, since It’s my first time to invest, I would need extra support and guidance, So in your experience how would rate these 3 banks, in terms of performance, service, etc.
Thank you and hope you would enlighten me more.
Rdgs;
javani
@Jeffery
If you have the budget, then I would say that you go and invest.
@CHRIS
You can read more about cost averaging here. I discussed the stock market here, but it also applies to UITF and mutual funds.
@javani
1.1 yes that means that BDO performed better, but remember that past performance is not an indicative of future performance
1.2 each fund has a different price, depending on how old the fund is and where it is invested, lower priced funds are usually still young
my suggestion is not to compare the prices, but the historical performance, fund terms, convenience and customer service instead
2. that depends on your investment objective, if you’re planning not to use the money for five years, it’s better to put it in moderate to high risk funds… but always do small amounts, in constant periods, over a long period of time
if you need to diversify, invest half in a moderate-risk fund, and half in a high-risk fund
for 1 year or less maturity, it’s better to put it in a low-risk fund or even a time deposit
3. I’m biased towards BPI and BDO because I have UITF investments in both banks… but my advise is to put it in a bank where it would be convenient for you to go to, so that way, you won’t get lazy to go to the bank every month or so to invest
hi fitz,
plan din namin maglagay ni mrs sa bdo and bpi (UITF) or first metro (MF) for our retirement. pero medyo confuse kami at hindi namin sure kung ano mas maganda. long term naman ang plan namin so mga 15-20 years. when it comes to higher return ano po ba ang mas okay UITF or mutual fund?
thank you and more power!
Hi Capt. From personal observation, pareho lang ang performance ng UITFs and Mutual Funds in the long-term – so walang “mas maganda” sa kanila.
My personal suggestion – invest in both. Hindi naman kailangan pumili ng isa lang. And invest only small amounts over a long period of time.
For example, if you have P100,000. Invest P50,000 sa UITF, and the other P50,000 sa MF.
Pero don’t do it in one go. Invest P5,000 a month for 10 months sa UITF. And do the same sa MF.
Ask for the minimum amount required to invest and just work on that amount, not more. If monthly is too hard, you can also do it every two months only, or quarterly.
Then hopefully, after mo ma-invest yung initial funds mo, you have more money saved so you can continue investing and you can continue to do so for many years.
Hi Fitz, quick question. Sa Mutual Fund ba or UITF, for example I do cost averaging let say 2k per month then eventually yung NAV or NAVPU naging let say 2200, ibig sabihin yung 2k ko hindi maiinvest hanggang magdagdag ako? Then I have to increase it regularly kapag yung monthly ko ay di kaya bumili ng isang unit? Or I can purchase in fraction?
Hi Jeffrey. When that happens, what you can do is to start on a new cost averaging investment.
Find another fund that can accommodate your P2k per month budget with NAV value low enough that it can allow you to cost average for several years.
For the first fund – you can either redeem it, or just let it “sleep” for awhile.
Redeem it if you want to “cash in on your profits”, then reinvest the money again (cost average in the same fund at a higher value, say P10k a month; or start cost averaging in another fund – both are good options, choose whichever meets your investment objectives).
But if you believe the NAV will continue to increase and you don’t need the money anyway, then you can just let it grow some more.
Thank you Fitz, so If I want to keep it for the same fund, I have to increase my monthly? Is this what you saying? And I cant buy in fraction?
Greetings Mr. Fitz:
1. Clarification: When you said “…but always do small amounts, in constant periods, over a long period of time” you mean that I should regularly(weekly,monthly,quarterly,annually whatever period) add additional minimum amount to my existing invested amount regardless of if the NAVPU was high or low at that particular time.
For example if i invested $500 in BPI Global Equity Fund, that means I should regularly increase that amount by additional capital of $300 or more even if the NAVPU at that time was down.
2. Performance: whether the fund reached is maturity period or not but have performed poorly(approx.for 1 week or I have a loss) I should redeem my capital and re-invest in another which is performing much better.
3. Compounded Interest: does the capital invested in the UITFs earn interest and are being compounded? From my understanding whatever the value of the Navpu when you redeem your capital that would be your gain,so will my capital earn extra interest aside from the Navpu? BDO said their dollar UITFs are automatic compounding the interest????
Thank you very much, and hope for your continued support.
Rdgs;
java
Thanks sa reply at tips sir fitz! mabuhay po kayo and God Bless!
@Jeffery
Yes, you have to increase your monthly if you want to invest in the same fund. Also, it depends on the fund but most of them don’t allow fractional units.
@java
1. Yes, the amount should be constant, the minimum required is recommended – and you should buy regardless if the NAVPU is up or down. That’s how cost averaging works.
In your example, if the minimum additional capital required is $300, then you should buy maximum units that your $300 will allow every time (no more, no less) – regardless if the price is up or down.
You’ll get to buy more units if the price is down, you buy less units when the price is up. In the long run, the average price is kept low because of cost averaging and you can make money if the price goes sideways because you are not timing the market.
2. Never redeem just because it’s performing poorly. Be patient and try to wait for the maturity period to come. The market usually goes up and down month-in and month-out, but it’s upward over the long-term through several years.
3. You are right, to my knowledge, UITFs don’t compound interest. But I’m not sure if banks have started offering products that do.
What’s that specific BDO dollar UITF? I’ll ask my contact in BDO about it so we can get clarifications.
Thanks Fitz. Ok lang din ba kung mas mataas ang allocation ko for cost averaging sa Equity kesa sa Bonds? Say 3500 sa Equity and then 2000 sa Bonds, is that ok or it is not balancing the portfolio? Thanks…
Hi Jeffrey. Personally, okay lang as long as you can sustain cost averaging on both investments for a long period of time.
Pero you should always consider your total portfolio and be sure you don’t have too much high-risk investments against moderate-risk investments.
But in the end, it’s still your decision – as long as you are comfortable with the risk you’re taking, then I say it’s all good.
Thanks Fitz… Last question. If I want to earn 500k in 1 year, where should I invest and how much monthly I need to put?
Also where can I find the growth % of EPS of a company, let say JFC? I wanna know their EPS growth % for the past years.
Thanks…
Greeting Mr. Fitz:
1. This is the explanation i got from BDO regarding the compounding of interest, where I got confused:
BDO Reply:
Thus, If you invested $10,000 for each fund last July 31, 2011, the value of your investments as of July 31, 2012 would have been:
BDO Dollar Money Market Fund USD 10,207
BDO Dollar Bond Fund USD 10,571
BDO Medium Term Dollar Bond Fund USD 10,862
Regarding your second question, we are happy to inform you that all the three BDO Dollar UITFs use the principle of compounding.
For your third question: all three dollar UITFs enjoy the same tax rates. In terms of risk profile, the most conservative (least volatile) is the BDO DMMF while the BDO MTDBF is the most aggressive (most volatile)The main differences are the following:
BDO DMMF BDO DBF BDO MTDBF
Modified Duration Policy >1 Yr 1-3 Yr 3-5 Ys
NAVPU Computation 4:00PM 7:00 PM 7:00 PM
Early Redemption Fee of PA 0.50% 0.50% 1%
Trust Fee – per anum 0.50% 0.75% 1%
Settlement Period Same Day T+3 T+3
2. What factors would cause the poor performance of UITF?
3. Will the strength of Dollar, Peso, Euro have an effect on the performance of DOLLAR UITFs?
4. Is UITFs transferable? I checked the application forms and did not find any clause for beneficiary, so what would happen to my investment in case of sudden death (which i hope doesn’t happen).
The banks told me that it will be included in my state of property.
I’m sorry Mr. Fitz, i Didn’t get it? Because what if I was working abroad and it happened over there, without my family knowing that I made such investments, will they be notified by the bank.
5. Lastly, please share if you have knowledge about Living Trust Funds?
Thank you very much and I appreciate very much your golden advices.
Rdgs;
java
Pahabol: Mr. Fitz are you also an investor of Group Buying Sites?
I checked your blog and videos of it, and found it very interesting. But I hope they would also include basic commodities in their sales like rice, LPG, gasoline, milk, sugar, medicines, etc. because before when i was working with the Phil. Navy and Army, they used this same method of group buying to get big discounts since they were buying large quantities which later on evolved in military commissaries which eventually some corrupt officials took advantage and sold the items outside the military to gain profit. Anyway I hope they consider because most of the sites offer the same products and their idea or concept I think came from Divisoria shopping. Thank you, just a suggestion.
Hi Fitz, what financial investment instruments have compound interest that is great to invest in? Can you suggest? Thanks a lot!
I have a question. I believe the BPI RSP scheme on UITFs is for cost averaging. If I already accumulated PhP10,000 worth of units, a COP will be given to me indicating the value my units are bought right?
To make my question clear, here’s the scenario: Php1000 will be deducted for my RSP on month 1 at 1.0 NAV, so October will be month 10 meaning I already have another Php10,000 worth of units. For month 10, NAVpu is 1.10. What value will be considered for that additional Php10000, the 1.00 or 1.10 NAVpu
Thank you sir and more power to your blog
Hi Marissa, it will be the average NAVpu of the units. Let’s say at month 1 until month 9, NAV is 1.00, then at month 10, NAV became 1.10.
Your COP will say you have invested P10,000 which represents 9,909.09 units (P9,000 divided by 1.0 for months 1-9, plus P1,000 divided by 1.10 for month 10).
At the time of issue, the value of that COP will be stated, which will be P10,900 (9,909.09 units multiplied by current NAVpu of 1.10)
The most important number on the COP is the units you own (9,909.09 units), because if you want to know how you’re investment is doing, you just multiply that by the current NAVpu (which changes everyday).
You can ignore the value of the COP stated (P10,900), and just take note how much you have already invested (P10,000).
Hope I was clear with my explanation.
Yes..thank you Mr. Fitz for answering my questions
and more power to your blog
May I ask, if the NAVPU is low that is when we buy UITF and when NAVPU is high that is when to sell right? It’s to maximize your money just like the stock market if I’m correct. As of date, the stock market is high therefore the NAVPU must be high too. Is it advisable to buy UITFs now? I don’t want to be on the tip of the rising curve just to find out that the philippine economy drops in 3 years. Rather than earning I lose tons of money. Please enlighten me. Many thanks.
Hi kumirei… nobody can ever predict where the market will go, and as a passive investor, we all have “better” things to do than to time the market, unless this is a career you want to pursue.
So my advise, invest only a small amount, but do it regularly over a long period of time, ie P1,000 to P5,000 monthly for the next three years or more.
This will cost average your investments and lessen your risks.
Mr. Fitz:
Is COP print-out copy for free ?
May you collect this COP once a month ?
Thank you.
Rdgs;
java
Hi java,
It should be free and you should get it every time you make a placement in the fund. Do ask your bank about their policies regarding this as they might have additional terms for getting a copy of the COP.
Hello Fitz,
This site of yours is really helpful specially to those who are new to this industry like me. I just opened a BPI Equity Value Fund with the minimum amt of 10k and it went P12 lesser than the minimum amount required. should i cover that P12 by adding 1k(minimum transaction)? If yes, how will i do it. I have BPI EOL account, but i don’t know how to transfer funds.
hello sir, thankyou for the clear illustrations, I am considering of investing UITF but I need to know what are the other banks offering UITF? What are the requirements? thank you so much
hello sir, thanks for this article, thank you for sharing your thoughts, I been searching for some idea about UITF, and now I have much more clear idea about it,thanks..and God bless.
Because this article is so good, i have bookmarked it for later reference. I’m new to investing and I’m taking in more knowledge so I won’t hesitate if an opportunity comes.
Making money from funds is like planting rice but there is a crucial difference.
You plant 10 sacks of palay, eventually you harvest say 20 sacks of palay; so you sell 10 of the 20 harvested sacks, and again plant 10 sacks.
That procedure can go on and on, just that you put in labor and water and fertilizer and pesticide, and of course prayer that no typhoon will wipe out your palay prior to harvest time.
What is the difference with making money from funds?
The difference consists in the fact that when you invest 10,000.00 pesos in a fund, you are buying 10,000.00 pesos worth of shares in a mutual fund or units in a uitf fund, which shares or units let us say come to 10,000, at 1.00 peso per share or unit.
Now, when your 10,000.00 pesos has grown to be 20,000.00 pesos, you redeem the whole 20,000.00 pesos, but then keep 10,000.00 pesos and re-invest the other 10,000.00 pesos in the same fund.
But take notice however that at this time your 10,000.00 pesos will not buy 10,000 shares or units, but only 5,000 shares or units, of the same fund.
Now, if you continue in that procedure, eventually you will end up with buying only very little shares or units of the same fund; so the money you make continually becomes lesser and lesser.
Think about it.
That is the way I see it.
What is the remedy?
Think about the remedy, I am also thinking about the remedy.
Of course you can prefer not to redeem your fund until many years later and the fund has grown huge in monetary worth, and then you redeem it once, as for example you are going into retirement and can use that huge money from your original investment of 10,000.00 pesos.
But I am talking about making regular money like regular income from funds.
Marius de Jess