Everyone needs money. We all think about it, and work for it. Having money is basically how we can have things done.
Thanks to a more robust economy, financial institutions have been able to come up with various options for growing their money. For as little as P10,000, investors can already achieve their financial goals.
But investing on your own is not easy to do. Choosing different investment instruments and creating a personal portfolio are time-consuming, and require a good appreciation of financial markets, instruments and the investment environment.
Today investors may avail themselves of various financial products—from money-market placements, mutual funds and unit investment trust funds (UITFs) to stocks.
The most popular are mutual funds and UITFs, which can allow consumers to invest even with just P10,000. Besides affordability, pooled investments give you the benefit of having a professional finance manager to manage the fund. Because they are liquid, investors also enjoy the advantage of being able to withdraw their funds when the need arises, subject to fees in some cases.
How do UITFs work?
UITFs are pooled investments of different funds, companies, corporations, invested and diversified to other investments, stocks, bonds, securities, money market and other funds managed by fund experts and fund professionals.
UITFs are offered by many banks in the country, and investors can open one by going to the bank or by opening an account online. The Philippine National Bank (PNB), for instance, allows the opening of a UITF online.
Mutual funds and UITFs are invested into various investment instruments to meet different financial objectives; some may prefer to preserve their capital, while some may want aggressive growth. There are different kinds of funds to meet these varying needs. For instance, money-market funds will be invested in short-term debt instruments; bond funds will be invested in government or corporate bonds; balanced funds will have a mix of stocks and bonds; and equity funds will be invested in shares of stock.
Investors may buy units of participation in UITFs, whose value is called the net asset value per unit (NAVPU). This reflects the current market prices of the instruments that make up the UITF. The NAVPU rises or falls, depending on the movement of market prices. UITFs are then invested in a variety of instruments, such as corporate and government bonds, money markets, and equities, to meet different risk profiles and investment objectives. Since UITFs are sold and managed by commercial banks, these are supervised by the Bangko Sentral ng Pilipinas.
UITF balanced funds are also invested in equities and, to some extent, fixed-income securities, depending on market condition. These funds are suitable for investors with balanced risk appetite.
Bond funds are invested in short-to medium-term bonds and other similar fixed-income securities, which aim for capital preservation and income generation. These are suitable for investors with moderate-risk appetite.
Money-market funds are invested in low-risk fixed-income securities and are suitable for conservative investors who are looking for safe and liquid investments which offer higher gains than those offered by savings and time-deposit accounts.
Those who wish to place their P10,000 in a pooled investment fund should consult a financial advisor. AXA-Alabang Unit Head Francel Purugganan have the following advice for would-be investors:
1. Whatever the size of their investment, and regardless of their financial status, it is always important to define their financial objective and their appetite for risk. This will guide them in defining the appropriate investment strategy that takes their individual financial profile into consideration. Knowing this, they can then choose the right fund that is closely tailored to their profile and needs.
- A long-term investment horizon will allow them to maximize their gains.
- Take the time to study the different investment instruments that the fund is invested in. Look at how the portfolio is allocated among different asset classes to gain a better understanding of what they’ve got.
- Top up. If investors have extra funds, it is always a good idea to add to their initial investment to help them meet their investment objectives faster.
- Look at management and transaction fees. Fees vary among different funds and among financial institutions. There are redemption fees, as well. These should be taken into consideration when deciding to buy or sell funds.
- Look at the track record of the fund manager or the organization managing your money. While past performance is not an indicator of how investors’ fund will perform in the future, it will give them an idea if their fund manager is capable of meeting investment targets. Regular reports about their fund’s performance should be made available to them.
- Note that pooled investments are usually not covered by the Philippine Deposit Insurance Corp. Even those funds that are invested in low-risk instruments carry a measure of risk. If capital preservation is their topmost objective, investors should reconsider if pooled investments are for them.