Within the industry of pooled investment funds, there’s competition between mutual funds and unit investment trust funds (UITFs) for investors’ money.
UITFs have one very big advantage. Banks have access to deposit accounts. Depositors often get calls from a bank branch officer and offers to invest in a UITF. Problem is, back in 2005 when UITFs were first offered, very few of those bank officers knew what they were offering.
“
Hello ma’am. I notice that you have such and such amount in your deposit account with us. Would you like to put this in an investment instrument that gives such and such return?” was a common opening line among bank officers.
That was scary because one, it fed into depositors’ common mentality to
chase after returns. Two, nothing on the script discussed the risks inherent in investments like UITFs. Even bankers admit this, and that is why there’s some comfort in knowing that the Bangko Sentral ng Pilipinas has tightened the rules for selling UITFs.
In the Philippine Daily Inquirer, Michelle Remo’s story
BSP tightens rules on sale of investment instruments says this move aims to improve transparency for potential buyers.
The BSP in a statement said that the amended rules for UITFs are consistent with international best practices for investor protection.
According to one of the new rules, trust entities of banks are required to disclose risks involved in investing in UITFs, complete details of product features and the formula for computing net asset value of the investment.
These details should be written in specific documents required by the BSP, including the risk-disclosure statement, which must be given to clients together with other UITF marketing materials.
A note to prospective clients: go through these risk-disclosure statements and be prepared for some heavy reading. These documents are not designed to be read as quickly as a restaurant’s menu because these guys will be playing safe.
Very few people understand these disclosure statements so don’t be shy to ask the agent or the banker, even if you need to ask them to repeat what they say. Watch closely to see if the agent or banker himself understands the product inside and out – and if he doesn’t, simply don’t invest.
I found it very interesting to read
Kamote-Kyu’s post on gambling in mutual funds. (I’m sure you know by now mutual funds are different from UITFs ☺ ). He says he invested last year just when the stock market was approaching its all-time high and lost P30,000.
I actually tried investing and lost Php 30,ooo as of today. Its now 3 months old. What i did not know when i put the investment was that the Philippine stock market is reaching its record high (in June 2007)! Which only means i will only realize gain when the stock market will reach a new record high. Tsk tsk. Gambling.
We gamble when we don’t know what we are going into. Sometimes we can make money, but more often than not, we get stung! I think Kamote-Kyu could have avoided this mistake if the agent explained the investment to him more fully. Hey, Kamote-Kyu, I’m glad you’ve recovered some of your investments and don't worry, everybody makes mistakes. It is through these "learning bumps" that the investment warriors learn.
Lastly, let's learn never to invest based on “hiya”, “kakilala naman” and never fail to read the prospectus because it’s too complicated.
Have a great, money-smarts day ahead! And do take a moment to extract joy in whatever you do. Real, simple joy is something money can’t buy!
I wonder why people say they invested something in the stock market and say they lost this amount of money. The right term for that is speculation not investing. For mutual funds, I think this is not to be mistaken as short term thing. Unfortunately, even reputable companies promote their financial products as if they were short term instruments. For example , most of them were advertising by promoting 20-30% earnings last year. They didn't mention that any fool that invested in a good diversity of equities that year they would earn as much as the market average.
I recommend Benjamin Graham's book "The Intelligent Investor" - the best book on investing ever written according to Warren Buffet. The book is about P 1000 pesos, but I wonder why people would risk a lot of money but fail to invest in what is most important.
Look up "John Bogle" on Youtube. He explains why Mutual Funds' earnings get eaten up by charges and why its better for defensive investors to go for Index funds.
Always research and don't rely on friends and experts. Only 10%-20% of people who invest make 90% of the money. That's because the 10% don't follow the crowd. Don't even trust the news. Today, the Philippine Stock Exchange is going down 6% as most investors are panicking. As they say, be optimistic when the crowd is pessimistic.
"Today, the Philippine Stock Exchange is going down 6% as most investors are panicking. As they say, be optimistic when the crowd is pessimistic."
so leo, in times like this, are you buying local equities?
Are you willing to buy while the foreign fund are still dumping their shares? did you average down?
Hi All,
I have been investing UITF since last year (Feb2007). I have seen how the PSei market reacts from sudden rise in China's equities and eventually drop to moderate rates, the first appearance of US market "recession" due to home mortgages problem up to this point in time. where the US economy is facing the signs of "recession".
My UITF is managed by B*O and after all those days, from bad to good, then bad again, I still stuck my funds with B*O. Before investing, I was already a little bit aware of their funds so its not that hard for me to understand what they have explained to me regarding the risks and possible loss when it comes to investing.I have spend several nights watching Bloomberg just to see how NASDAQ & DOW go up and down and I must say that it gives me a clear picture of how bad it is back there.
Going back to my UITF, perhaps you may ask if I already withdraw my investment and I say No. I still believe that the fund managers here in the Philippines are good enough to see the good & the bad moves when investing our hard earned money.
The key is not to be pressured by growing pessimism of the market. Learn how to be more patient and find the right timing in cashing in your investment. Its saddens me that, not all are aware that such funds exist. I cant imagine if our very own OFWs were given ample time by banks re: investing on UITF, mutual funds and others so as not to put their hard earned money into waste.
The market went down today. But how many people are still hanging on convinced by the punters that the market is going to hit 4000 this year? At the first sign of trouble bail out so you dont get trampled by the big boys.
it boils down to one important thing when it comes to investing: be knowledgeable! Be armed. All of them were right when they said that you have to investigate and do some research yourself regarding the ins and outs of the industry. Well, sometimes we even have to burn money to learn. Don't EVER RELY on the agent/experts. Remember they're similar to those sales ppl you see at the malls doing their sweet talks while handing over flyers regardng the products they're selling from auto loads to condo units. It's a dog-eat-dog world out there, if you haven't noticed. So be armed! =)
Leo says - "Be optimistic when the crowd is pessimistic".
Think it's not applicable this days.....