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Mutual Funds and Unit Investment Trust Funds, What's The Difference?
One of the questions I get asked very often is whats the difference between a mutual fund and a unit investment trust fund or UITF?
I understand the confusion of many for both actually look, work and perform the same way. But there are some key differences that an investor like you
should know.
But first lets discuss the basic similarities between the two.
Both mutual funds and UITFs are pooled investments. This means that the money in them came from thousands of people. This money, which is collected
under a company or institution, is then invested in diversified financial instruments such as stocks, bonds, money market and many others.
As an investor of a mutual fund or UITF, you are relieved of the responsibility of studying the market, because you have given that duty to the investment
company whom you trust will do their best to make your money grow.
Wherever you put your money, it will be exposed to risks and the amount of return is always uncertain in either case. But on the other hand, both mutual
funds and UITFs can offer yields greater than cash deposits, thus making them attractive investment instruments.
Now that you know their similarities, what about their differences?
Where to invest
MF: A mutual fund company. They are sold by licensed mutual fund agents. Heres a list of Philippine mutual fund companies.
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UTIF: Commercial banks, particularly their trust, investment or treasury department. They are sold by authorized bank employees. Check out the BPI
Investment Funds and BDO UITF Products.
Who regulates these companies
MF: Securities and Exchange Commission (SEC)
UITF: Bangko Sentral ng Pilipinas (BSP)
What you are buying in a fund
MF: Common shares in the investment company
UITF: Units of participation in the fund
The price of the fund is expressed in terms of
MF: Net Asset Value Per Share (NAVPS)
UITF: Net Asset Value Per Unit (NAVPU)
Investment fees and their usual range
MF: sales charge (1% 5%), redemption fee (0.5% 3%), investment advisory, distributor and administration fees (1% 2.5%)
UITF: sales charge (0% 2%), redemption fee (1% 2%), trust fees (1% 1.5%)
So which one is better? I personally believe neither one can give a higher return than the other. And its always best to study the performance of specific
funds rather than compare mutual funds and unit investment trust funds in general.
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People are talking about this article, join the conversation below.
1. mildie on June 3rd, 2010 at 9:57 am
Hi Fritz,
Thanks for this point for point comparison between UITF & MF. No one even the agents of mutual funds or banks can give me a better explanation
on the two funds than what you have given on this article. Hope you can post something about Index funds/ stocks in the future. too.
2. MD on June 3rd, 2010 at 10:11 am
Hi,
You mentioned UITFs has 20% tax on capital gains. I have some trust funds but have not cashed them out. My question is will I still be taxed even if
there is no gain meaning I sold at a loss?
Thanks
3. anne on June 3rd, 2010 at 11:18 am
thanks a lot fritz! this is great. thanks for sharing. i love reading your blog.
4. Fitz on June 3rd, 2010 at 5:56 pm
@mildie
Thank you. Sure, I will try to do research on that and come up with a simple article to explain those.
@MD
As far as I know, you wont be taxed if you sold at a loss. But to get an exact picture of what could happen in your case, I suggest you ask your bank
directly about this. Thanks.
@anne
Thank you. I hope you can also tell your friends about my blog, Id really appreciate that.
5. Millionaire Acts on June 3rd, 2010 at 10:22 pm
Nice comparison Fitz. I also had the same article discussing the similarities and differences.
http://www.millionaireacts.com/125/choose-mutual-funds-vs-uitfs.html
By the way, you forgot to mention that in mutual funds, each investor has the power to elect the fund managers since they are like the stockholders of a
company whereas in UITFs, the investors dont have the power. Only the Trust Department of a bank handles the fund.
6. silent_investor on June 15th, 2010 at 2:53 pm
Hi Fitz, I too have both MF and UITF. In the disadvantages of UITFs, Im not sure Ill agree with number 1 and 2 on your list.
On regulations, there are a lot of laws and BSP circulars which cover UITFs.
On transparency of investments, I can get monthly and quarterly reports on my UITFs which show the portfolio allocations and even top ten holdings,
something that I dont get from my MF. All I get is a quarterly report on how much my investment is.
7. Fitz on June 18th, 2010 at 4:17 am
@Tyrone
Yes thats also a good addition to their basic differences.
@silent_investor
Thanks for the inputs.
I, too get monthly and quarterly reports on my UITFs from my current bank, which is great. But I could not say the same for my previous bank where
I used to have UITF investments.
Moreover, my MF also only gives quarterly reports but at any time, I can call them and request for a more detailed report on the allocations.
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So, I guess it really depends on the MF company and the bank when it comes to the transparencies.
8. Free Pinoy Financial Checkup on November 8th, 2010 at 3:37 am
I have both MF and UITF, what i can say is both are performing very well. My MF has +1% return above my UITF.
I bought them at the same time to see the comparison between these pool funds
9. Mark on January 2nd, 2011 at 2:41 pm
I have UITF in 2 banks both of which has no 20% witholding tax?
And as far as I know, the taxes are paid out of the funds assets
so the NAV is already net of all taxes and fees.
Which banks UITF still deducts a 20% witholding tax so I know
which bank to avoid hehehe
10. dodong on January 14th, 2011 at 4:19 pm
fitz,
can you explain why corporations issue bond instead of acquiring loan? I think you can avail lesser interest in loans than paying the bond rate which is
higher. Thanks.
11. Fitz on January 14th, 2011 at 6:49 pm
@Mark
Yes the NAV is already net of all taxes and fees because the taxes are already paid out by the funds assets, the witholding taxes are still there
actually, but its already incorporated in the computation of the NAV a strategy that banks now use to encourage more investors and make it simpler
for them to understand how you can make / lose money from your investment.
@dodong
Thats an insightful question. As far as I know, there are many types of bonds and not all of them pay regular interests to the lender (ie, zero-coupon
bonds). Some types of bonds dont even have a maturity date (ie, perpetual bonds).
Unlike a bank loan, where the terms and conditions are often straightforward and fixed. Bonds have other mechanics that will make it for the company
to have less costs in the long term.
12. Marx on December 1st, 2011 at 6:54 pm
@fritz, Im guessing you havent seen any mutual funds annual
statements?
I look at PhilEquitys and Sunlifes.. its clear as day that
thats also what mutual funds do, pay taxes from the funds
assets just like UITFs.
The one difference I can see is that since a mutual fund is
technically a corporation/company, it apparently can defer
its tax liabilities, except for those investments subject to
final taxes, i.e. deposits subject to 20% tax.
Also, you can see that dividends are not taxed. PhilEquitys
report is clearer about this. Apparently, dividends recieved
by a corporation, which is what a mutual fund is, from another
corporation are not subject to taxes.
Im not sure if UITFs are considered a corporation, I would
think not. so if they get dividends, they are probably taxed.
Cheers
13. JR Rosales on March 13th, 2012 at 4:41 pm
@Fitz Are bond funds (Fixed Income Funds) worth investing in? Thanks.
14. Fitz on March 14th, 2012 at 3:51 am
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some due diligence to find a secure and reputable company to invest with.
Also, UITFs usually have lower starting capital requirements than MFs which is a factor you should consider if youre a new investor.
29. Rajon on December 24th, 2012 at 10:53 am
Greetings!
Hi Fitz, im here again for some questions, hope you can help me. First, is COL automatically deducting their management fees in the market price
value when buying and selling stocks? Just for confirmation that when you buy stocks they charge you around 12% and almost the same when you sell
your stocks?.
Merry christmas and a happy new year Fitz.
30. Fitz on December 24th, 2012 at 4:39 pm
Hi Rajon,
Yes, COL deducts fees both when you buy and sell. These charges are the brokers commission, VAT, PSE transaction fee, SCCP fees and sales
tax.
The detailed breakdown is available HERE
31. Jex on December 30th, 2012 at 6:15 am
great post! i believe that MF and UITF are essentially the same but i personally prefer UITFs because of the lower management fee and convenience
especially if your account is enrolled in an auto-debit program such as BDOs Easy Investment Plan. If not checked regularly, magugulat ka na lang in
a couple of years or so, naggrow na yung investment na pakonti konti just like a turtle.
With regards to one of UITFs disadvantages, I think that MFs do not really have this tax advantage over UITFs. The 20% tax is subjected into both
UITF and mutual fund NAVPUs/NAVPS as they are not exempted from this final tax on interest earnings. That separate 20% witholding tax has been
clarified by a press release from Punong Bayan and Araullo. The way i see it, parang marketing strategy ng mga mutual fund agents to not choose
UITF over MF. As to performance, pare parehas lang naman. very minimal differences. pareparehas kasi nag-iinvest sa blue chips.
32. Vin on February 23rd, 2013 at 10:15 pm
Hi! Im new to MF and UITF, in fact Ive yet to invest in it. My question is, if for example I am investing 10,000Php per month for lets say three
years (so as to follow the peso cost averaging technique) and Ive found out that the units bought in September to November of Year 1 have the
highest ROI, can I choose to sell the units I bought only in that three-month period having the highest ROI? Do you I get the same answer to both the
UITF and MF?
33. John Lim on March 19th, 2013 at 1:26 am
Hi Fritz,
Thanks for the information youve shared. I have diversified investments in UITF of different banks since I started last year. All my funds have a
surprisingly positive results due to the good performance of PSEi.
That is why just 8 or 9 days agao, I reinvested in BPI-UITF when the PSEi has breached its all time record high. I guess the timing was not right, its
only near 8 days since I invested in BPI-balance and BPI-equity, Ive lost 2.5% of my investment already.
My question is, would you suggest I pull-out my money and charge it to experience nalang, and offset my loses to my other positive investments? or
you suggest to wait for the unit value to appraise in the coming days or months?
Would you suggest also that I withdraw my other placements that earned 12 to 15% already in less than a year time?
I hope you could help me. Thank you!
34. Fitz on March 21st, 2013 at 1:08 pm
Hi John Lim. What are your investment objectives? That will dictate when you should redeem your shares.
Balanced and Equity funds are moderate and long-term investments this means it is recommended that your MINIMUM holding period is 3-5 years.
During this time, the price will experience fluctuations it can even go negative. But in the long-term, it should go back up.
What should you do? Again, ask yourself for what are you going to use the money you invested.
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If its for something you need or plan to buy 3-5 years or more in the future, then just let it sit there.
One last tip control your fear and your greed. Minimize emotions in monitoring your investments.
35. bombyx on April 21st, 2013 at 3:55 am
Hi Fritz, Im a newbie in investing and has been reading a book Millionaire Teacher by Andrew Hallam ISBN 9780470830062 (btw, a good read!)
he advised that a portfolio composed of a stock market index and a bond market index could give very powerful returns.
My question is, what are the Philippine equivalent of these indexes? Is it the PSE index and the ABF Philippines Bond Index Fund respectively?
Thanks.
36. Mike Garcia UBP on April 29th, 2013 at 6:52 pm
Your advantages and disadvantages portion of UITFs and Mutual Funds are misleading. How do you know which is better regulated? How can you
tell which is more transparent? what is your basis for this?
And by the way, both MF and UITF investments are subject to final withholding tax on their investments
37. Fitz on April 30th, 2013 at 2:18 am
Hi Sir Mike. Thank you for the comment.
Please give us more details on the advantages and disadvantages, wed love to know these based from the point of view of an investment officer.
Ill edit the post above and make it clearer and more accurate once you share your thoughts.
The information stated there is based on the things said to me by a mutual fund agent, and a commercial bank branch manager.
Thanks!
38. Zest on May 6th, 2013 at 6:09 am
Hi i have a question about Uitf:
1. If i redeem my earnings (beyond minimum
Holding period and i am still beyond minimum amount requirement), what will happen to the navpu of my remaining units? Will it be rolled over to the
navpu of the day i redeemed partial earnings?? Or will it remain the samr as before?
2. Can i open two separte equity fund in the same bank if i plan to redeem more on the other fund than the other or will it always add up?
3. If i add money in my fund, what happens to
The navpu of the money i had in the fund before? Like is
That two different portfolio to be treated?
Thank you
39. joe on June 15th, 2013 at 11:09 pm
HI Fitz. I had an investment in UITF (balanced fund) and they hold my investment for at least 3months. The NAVPU at that time lets just say was
3.30xx. Now, the NAVPU nose dived to 3.14xx and in a few days my 3 months is due. My question is, what do you think is best: Should I remain
my investment and roll it for another 3months? or should I withdraw it at a loss and buy the current price of NAVPU? Thank you.
40. Fitz on June 16th, 2013 at 9:53 am
@Zest
1. It will remain the same before.
2. Yes, you can open two fund accounts with most banks. Ask you bank whats their policy on this.
3. You dont have money in your fund, what you have are units of investment and adding to your investment means you are buying more units. The
average price to which you bought them changes each time you buy units (invests in the fund).
@joe. Id say just hold. But more importantly
Why did you invest in the first place? What is your objective for this investment? I can give you a better answer if you tell me these.
41. Mathew on July 17th, 2013 at 2:46 pm
I invested in mutual funds only like Reliance, DSP Black Rock and UTI. Should I invest in unit investment trust fund or UITF? Which companies offer
this fund?
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