OFWs News:
Part 1 & Part 2
Pagpapahalaga sa Perang Kinita: A Primer
Parts 1 & 2, 3 & 4, 5 & 6, 7 & 8, 9 & 10, 11 & 12, 13, Dealing with Banks
PART 13
 UITF’S AND MUTUAL FUNDS

Case 1
Let us say your investment objective is: “To save and invest money to be able to buy a home in 5 years.” First, make sure you are a regularly contributing member of PAGIBIG. Your regular contribution is the main foundation of your savings and investment objective.

Safety is the main consideration in attaining your stated objective. You want your savings and investment to be intact so that you can make a down payment or, at most, fully pay for your dream house at the end of 5 years. You won’t mind if the investment is not too liquid because you won’t need it before the 5 years is over. Of course, the return on your investment matters but you are ready to sacrifice some of it for the sake of safety.

Your best options are retail treasury bonds (RTBs), if these are available. If RTBs are not available, UITFs or mutual funds invested mostly in long-term government securities are another option. Your bank should inform you in what instruments their UITFs are invested. There are high risk UITFs which have a significant amount of investments in stocks. There are more conservative UITFs that are invested mostly in government securities. You would prefer the latter.

You should also ask them to show you the historical performance of these UITFs. Some banks post graphs of the past performance of their UITFs. You can easily see if these UITFs are increasing or decreasing in value or if their values are changing a lot or just steady. You would want a UITF that is growing steadily. Below is a graph of a fund that is growing steadily.

You can also consider investing in a mutual fund. See Appendix F for the different types of mutual funds. To be on the safe side, invest only in the best performing mutual funds. Below is a list of the Top 10 Mutual Funds in the Philippines.
Top Ten Mutual Funds
Ranked by reported assets at end-2003, in millions of Pesos  
Company
Assets
Market Share (%)
Ayala Life Fixed Income Fund 19,131.0 43.0
Philam Dollar Bond Fund (AIG) 8,720.8 19.6
Philam Bond Fund (AIG) 15.4 6,851.1 15.4
Sun Life of Canada Prosperity Bond Fund 4,413.9 9.9
ALFM Dollar Bond Fund 2,139.9 4.8
GSIS Mutual Fund 1,002.1 2.2
Philippine Index Fund 341.5 0.8
Philam Strategic Growth Fund (AIG) 308.5 0.7
Mutual Fund Company of the Philippines 307.7 0.7
Sun Life of Canada Dollar Advantage Fund 307.0 0.7
Total
 44,497.0 100.0
Source: Economist Intelligence Unit (2004)    

Still, you have to know the UITFs’ and mutual funds’ terms and conditions (minimum investment, fees, taxes, holding period, etc.), historical performance and what instruments it invests in. Only then can you have an idea of the safety, liquidity, and return of such funds.

Case 2
Another possible investment objective is: “To make as much money as possible in the shortest possible time.” Return and liquidity are the main considerations here. You would want to make investments in short-term (30-60 days) instruments that give the highest return. You can look for UITFs significantly invested in stocks (or even individual stocks but you will need a stock broker for this) which have a definite growth prospect in the short-term. However, the most important guide would be the UITF’s historical and recent performance.

Is the value of the UITF growing rapidly? Will it still reach its peak? Unfortunately, you can never get 100% correct answers to these questions. And that’s where the risk (or lack of safety) comes from. Rapid growth can suddenly be reversed by rapid losses in the stock market. Below is the graph of a fund that grows and falls rapidly. Analysts call this fund “risky” and “volatile”.

How much of your investment are you prepared to lose? If you are not prepared to lose any of it, then you might want to rethink and revise your investment objective to: “To make as much money as possible in the shortest possible time from low to moderate risk instruments.”

If you changed your objective like so, then your preferred instruments will follow. Look for UITFs with a short holding period (30-60 days) that have been showing significant growth but which are substantially invested in government securities. The latter moderates the risk but also brings down the return. But in life as in investing, you can’t win them all.

From beginning to end, what you need to balance safety, liquidity, and return is INFORMATION. The bank or financial institution offering you investment products are required to give you all the information you want to know about these products. They should also give you information about how their company itself is performing financially. If they are not willing to give you information about the performance of their products and their company, DON’T DEAL WITH THEM.

You should also get independent information from the Bangko Sentral ng Pilipinas (BSP) [http://www.bsp.gov.ph/banking/bspsup.asp] about the performance of banks and the Insurance Commission [http://www.insurance.gov.ph/htm/_statistics.asp] about insurance companies. 
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