When it comes to investing your hard-earned money, you have several options, and two popular choices are Mutual Funds and Unit Investment Trust Funds (UITFs). Both of these investment vehicles offer opportunities to grow your wealth, but they have some key differences you should understand before making a decision. In this blog post, we’ll break down these differences in clear and simple language.
Structure
Mutual funds are managed by an investment company. When you invest in a mutual fund, you’re buying shares in the fund, and your money is pooled with other investors’ money. A professional fund manager makes decisions on how to invest this pooled money.
UITFs, on the other hand, are managed by banks. When you invest in a UITF, you purchase “units” of the fund, and your money is combined with other investors’ funds. Similar to mutual funds, a fund manager handles the investments.
Regulation
Mutual Funds are regulated by the Securities and Exchange Commission (SEC) and governed by the Investment Company Act. This regulation provides investor protection.
Whereas, UITFs are regulated by the Bangko Sentral ng Pilipinas (BSP) and the Philippine Investment Funds Association (PIFA). While they are also subject to regulations, the regulatory framework differs from mutual funds.
Liquidity
Among the two, mutual funds are generally more liquid. You can buy or sell mutual fund shares at the end of the trading day at the Net Asset Value Per Share (NAVPS).
In contrast, UITFs can vary in terms of liquidity. Some UITFs offer daily redemption, while others may have specific redemption schedules, like weekly or monthly.
Costs
When you invest in a mutual fund, you may incur sales charges, also known as front-end or back-end loads, and annual management fees. These charges can impact your returns.
While UITFs typically have lower upfront costs and management fees. However, some banks may charge other fees, such as trustee fees or exit fees.
Transparency
The good thing with mutual funds is that they are required to disclose their holdings regularly, allowing investors to see where their money is invested. This transparency can help you make informed decisions.
However, UITFs may not provide the same level of transparency as mutual funds. Some UITFs disclose their holdings, but it may not be as frequent or detailed as with mutual funds.
Kuya Well’s Corner
I’ve mentioned several times that I’m currently investing in a mutual fund which is the ALFM Global Multi-Asset Income Funds. That’s the only mutual fund that I have in my portfolio. But as for UITF, nada. And I don’t think that I will have one in the future.