Mutual Funds vs. Unit Investment Trust Funds, What’s The Difference?
One of the frequently asked questions financial advisers get asked very often is this –
“What’s 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. I’m sharing here the similarities and differences of the two along with the advantages and disadvantages.
Mutual Fund vs UITF per Definition:
A mutual fund (MF) is a type of investment wherein you join other investors and corporations to form a massive fund which will be handled by an expert/professional who is called fund manager for diversified portfolios of stocks, bonds, securities, money markets and other mutual funds. Here, you buy shares of the investment company thus that makes you a shareholder and gives you shareholder’s right including voting power and opportunity to receive dividends.
UITF (Unit Investment Trust Fund) is also a type of investment where you join other investors and entities to form a Trust Fund which will be handled by Trust expert/professional for diversified portfolios of stocks, bonds, securities, money markets and other funds. In UITFs, you buy units of investment in the fund thus you will earn from the gain or loss resulting from the fund performance. Unlike MF, it won’t make you shareholder of the company.
Similarities of Mutual Funds and UITF:
Both funds are pooled and are open-ended investments, meaning they are pooled by different kinds of funds, people and companies to be invested and diversified to other investments like stocks, bonds, securities, money market and other mutual funds and trust funds. This means that the money in them came from thousands of people. They are open-ended investments meaning you can buy or redeem anytime you want.
Both funds are managed by fund managers who are already experts about investment fund growth, strategies and meeting target performance.
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.
Both fund investments are risky in nature however they can give you higher returns and can yield amazing money and capital growth.
Mutual Funds and UITFs usually offer the following types of funds and investments:
Money Market Funds –moderate risk; short term
Bond Funds – moderate risk; long term
Equity Funds – aggressive; long term
Balanced Funds – aggressive; long term
Both funds are not insured by the PDIC because they are not deposit accounts.
Differences between Mutual Funds vs UITFs
How and where to invest?
Mutual Fund – A mutual fund company. They are sold by licensed mutual fund agents. You can open an account by talking to a licensed mutual fund agent first so you’ll know the different types of MF available for you according to your risk tolerance (risk appetite), capacity to invest and your investment goal.
UITF – Commercial banks, particularly their trust, investment or treasury department. They are sold by authorized bank employees. You can open an account by talking to a Trust representative of a bank. Banks usually have special representatives (not tellers) for Trust Investments and related products. If you can’t find one at the bank, talk to the bank manager. They will always be glad to assist you.
Who regulates these companies?
Mutual Funds – are regulated by SEC (Securities and Exchange Commission)
UITFs – are regulated by the BSP (Bangko Sentral ng Pilipinas)
How much is the minimum investment?
Mutual Fund – the minimum amount I know so far is P5000. Take note that some MF has different minimum amount requirements since there are different funds.
UITF – the minimum amount for UITF like Equity Fund and Balanced Fund is usually P10,000. For other UITFs, the usual minimum investment is P100,000.
How long is the holding period?
Mutual Fund – majority of mutual funds has 6 months minimum holding period although there are only few which have 30-day holding period.
UITF – majority has 30 days of minimum holding period and also 45 days to some.
Price of Funds:
Mutual Fund – in mutual funds, you buy shares in the investment company therefore prices are expressed and reported in NAVPS (Net Asset Value Per share)
UITF – in UITF, you buy units of participation in the Trust Fund therefore prices are expressed and reported in NAVPU (Net Asset Value Per Unit)
Fees and Charges:
Mutual Fund – there may be entry fees around .50% – 5.00% and management fees associated with this investment
UITF – no entry fees but with trust fee ranges from .50% to 1.00% per annum, there can also be redemption fees especially if you redeem your fund before the holding period
What you are buying in a fund?
MF: Common shares in the investment company
UITF: Units of participation in the fund
Advantages and Disadvantages
Advantages of Investing in Mutual Funds:
- They are usually more and well-regulated since companies really focus on their funds and their performance. Reports are more transparent since shareholders need to know fund performance, reporting, portfolios, dividends etc.
- May give the investors dividends and other shareholder’s rights
- Tax exempt in terms of Capital Gains
Disadvantages of Investing in Mutual Funds:
- They charge entry fees and management fees. An IMG member, is privileged to take advantage of a ZERO load entry fee to their partner Mutual Fund companies.
- MF companies are not so easy to find like banks where branches are almost everywhere
Advantages of Investing in UITF:
- Easy access because you can open an account in any branch of the bank near you
- They offer wide variety of funds you can choose from
- No entry fees and costly management fees
Disadvantage of investing in UITF:
- It won’t make the investors part of the company and won’t give shareholder’s rights
- Which is better Mutual Fund or UITF?
Mutual Funds and UITFs are both effective and well proven ways of money and wealth building.
This is so true according to the rich and wise investors. Both funds are kind of similar in nature but can give you thousands or millions of money if invested correctly by checking each fund’s performance and investment participation. They are both risky yet they both could give you higher returns compared to just letting your money or fund rest in your vault or savings account.
“If you have mutual funds, you belong to the very few wise investors in the world.”
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