In my previous post, I talked about what is unit investment trust fund (UITF) and how you can invest in it. In order to give more information and help readers of this blog about investing in this kind of investment, I’ll be discussing in this post the different types of UITF.
UITF works much the same as mutual funds. I think the only difference between the two is the company that manages the fund. In case of mutual fund, an investment company supervised by Securities and Exchange Commission (SEC) handles and manages all the transactions of the fund. On the other hand, in case of UITF, bank normally the one manages it.
Before opening an account in your chosen bank, there are some tips and information that you should know to give you a better understanding on how to pick the right fund for your investment goals. One detail that you should know prior investing in UITF is which type can satisfy your objectives and needs. In the following section, you will learn the several types of UITF giving you detail facts about each fund. Basically, the funds are categorized based on where the fund is invested.
1. Money Market Fund
In this type of UITF, the fund is primarily invested in short-term, fixed-income securities with an average investing period of one year or less. The return or profit gain of money market fund is relatively higher than time deposits and savings account.
Normally, the goal of this kind of fund is for capital preservation and income generation in short term period. Money market UITF is best suited for moderate investors, meaning it is for people who are moderately aggressive and wants an average risk investment.
2. Bond Fund
Bond fund is a kind of UITF with the goal of capital preservation and income generation over the medium term by investing in fixed income securities with duration of more than one year. Compared with money market fund, it gives higher returns but has higher volatility.
Bond funds are designed for investors who want a moderate risk investment and who have a investment time duration of three years. Bond funds can be invested in government or treasury bonds, corporate, mortgage and municipal bonds.
3. Balanced Fund
As the name of the fund implies, a balanced UITF is mainly invested in stocks and bonds or fixed-income securities like Treasury bills and high yield savings account with almost the same percentage. The aim of balanced fund is to give additional profit from stock investment gains and provide capital appreciation from fixed-income investments.
This type of fund is best suited for investors who want to gain profits from stocks and at the same time wants to invest in fixed-income and lower risk investments. That’s why it is called balanced.
4. Equity Fund
Equity fund is primarily invested in stock market. The fund manager decides which stocks to choose and invest in depending on his or her research and study. Among the types of UITF, this fund has the highest risk and volatility and best suited for aggressive investors. Therefore, it is important to invest in longer periods to lessen the risk.
If you want to invest in equity UITF, you have to remember that there is a greater chance of losing your money since the fund is wholly invested in stock market. There is no guarantee of capital in investing in UITF unlike savings account and time deposits. However, you don’t have to worry about your capital since these funds are manage and supervise by professional investors and reputed banks.
UITF is also regulated and oversee by the Bangko Sentral ng Pilipinas (BSP) so if you invest in a legitimate bank offering UITF, you are rest assured that you will not fall into scams and frauds. However, like what I said before, the returns and profits are not guaranteed by either the bank or BSP since it is not a deposit account. In addition, the past performance of the fund is not also a guarantee of future profit but it will give you a good information on how the fund performed during the economic crises in the past.