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Do’s and don’ts in UITF

Wanda Beltran of Metrobank shares tips on starting UITF investments

For a first-timer, investing can be overwhelming. Since you have little to no experience, you can either be too conservative and lose out on opportunities, or be too aggressive and lose the money you set out to start with. Thus, it’s a good thing that there are Unit Investment Trust Funds or UITFs which you can start with.

There are three major reasons why UITF is ideal for newbies. First, UITFs are professionally managed. This means that experts with the necessary skill and resources are working hard to make it sound and profitable. And since UITFs are regulated by the Bangko Sentral ng Pilipinas (BSP), there is that sense of comfort that such are properly administered and managed. You get to experience and learn about investing without necessarily worrying about the soundness of your investment.

UITFs also provide instant diversification because it represents a pool of funds coming from different contributors/clients, that is invested in several assets/securities, thereby spreading the risks. Using an Equity UITF as an example, there exists in the pool not just one stock but several others from various companies across different industries.

What also makes UITFs an ideal choice is their affordability. Investors can begin buying units with a relatively small amount of money. Some UITFs even allow investors to buy units on a regular basis with even smaller monthly installments.

Now before embarking on your first UITF, you need to make some preparations. Begin by setting your goals, since these determine how long (or short) your horizon is for investing. And while you’re at it, relate your goals to life events so that your investing becomes more purposeful (e.g., getting married at 30, buying your own house at 40, retiring at 50). As you set your goals and understand the time that you will need to realize them, choosing the kind of UITFs to invest into becomes much easier.

Consider investing in the basic ones first, and familiarize yourself with how asset classes behave generally. As your understanding about UITFs broadens and deepens, you can then venture into the more “thematic” funds. You should also focus first on making regular investments rather than aiming for earnings. If you focus solely on making good returns, then you will always doubt your investment decisions whenever your portfolio declines. When it comes to investing, time is your greatest ally. The most successful investors commit to staying invested and saving enough.

In your journey as a UITF investor, keep in mind the following practices:

Understand your risk tolerance. You should only invest within the amount of risk you are willing to bear.

Study the UITF you are investing into. Although UITFs will generally be the same across a particular category and across different banks, there still may be differences in investment policy as well as fund mechanics.

Be cognizant of the fund costs as this also impacts the fund’s performance. Look at historical performance as well, since this gives you a glimpse of how “consistently” the fund has been managed well.

When in doubt, speak to a professional. Remember that as an investor, you are entitled to ask and receive answers on questions related to the UITF you are getting into. As required by the BSP, trust entities must provide resources to respond to investor queries.

Do not invest money you will need in the short term into long-term UITFs. If you do this, you will find yourself losing 99% of the time.

Do not think that you can time the market. No one can absolutely tell you when it’s the best time to buy or sell a UITF. Anytime can be a good time to enter.  The question is how long can you stay invested?

More importantly, do not panic when your UITF is losing. The last thing you want is realizing your losses only to see the market recovering after a few days. Before deciding to cut your losses, assess first the chances of recovering.

In UITFs, as with all investments, losses remain unrealized until you actually sell, and in most cases reversing that loss would be easier if you remain invested.

Whenever you experience a decline in your UITF portfolio, try to understand what’s causing it, and assess whether you can ‘ride it out’. When you are aware of the reasons causing the deterioration, then you become better prepared to plan on how to move forward.

Treat downturns as an opportunity to average down on your costs. Downturns are the best time for you to load up on valuable investments because these will be, most likely, cheaply priced.

Lastly, monitoring your UITFs regularly is helpful in keeping them healthy. Make sure you set a reasonable schedule to periodically check on your investments. And if you can afford it, create a portfolio of UITFs so you can insulate yourself against volatile markets.  It is also advisable that every once in a while, you take profit on your UITFs once you’ve achieved your return objectives.

By following these practices, in time, you can become a master at investing in UITFs.

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