Invest in managed fund: mutual fund, UITF, PERA, ETF, VUL

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A managed fund, also called investment fund, is a pool of money from willing individual and institutional investors. It is for this reason that it is sometimes called pooled funds. It uses the money that it collected to buy and sell stocks, bonds, money market securities, and other investment assets on their behalf.

Before I even talk further about managed funds, I think it is important that I talk a little bit about investing.

Investing in securities

There are many different ways to invest your money with the expectation of getting something in return and earn passive income. You can always do so in time-deposit accounts in the bank, buy real estate, start a business, acquiring works of art and collecting valuable items.

Each of the above have their own pro’s and con’s.

But what I’m going to discuss is investing in securities, specifically paper assets. Paper assets are anything that indicates ownership like stocks that are traded in Philippine Stocks Exchange (PSE) or a proof of indebtedness/debt instruments like bonds, LTNCD, and other similar investment products.

When you invest in stocks, you get to enjoy potential earning through rise in the stock price and dividends. When you invest in debt instruments, you may earn through the interest that is being paid out periodically.

For average Pinoy investor, owning these paper assets may not be an option for several reasons.

One, they may require huge capital. For example, buying all of blue chips stocks of the top 30 Philippine companies would require at least P120,000 so an index fund that mimics their return is recommended for retail investors.

Two, they can be quite challenging to manage especially when you have no expertise.

Here’s a detailed comparison between owning direct stocks and investment funds.

Investing in investment fund

A managed, investment fund is a product from financial companies that does all the buying and selling of securities on behalf of the investors.

You no longer have to deal with all the trading to maximize your gain. Instead, you open an account and they do everything for you.

What companies get in return for offering manged fund are the fees and charges that they collect for the work that they do. And the benefit for the investor is that he/she does not need to worry about managing each and every security day to day.

For a more detailed discussion, see: What are the benefits of investing in a managed fund?

What are the different investment funds?

Managed funds are be grouped according to the paper asset that they primarily trade.

These are the following types of managed, pooled, investment funds in Philippines.

Mutual fund (MF)

In the Philippines, a mutual fund is offered by investment companies. It is organized as a corporation. So when you open an MF account, you are given stocks as proof of investment and you become effectively a stockholder.

Capital gains are tax-exempt. Most MFs charge sales load. See more related, in-depth discussions.

Unit investment trust fund (UITF)

A unit investment trust fund is managed by a trust company and available most commonly through banks. The way that you invest is by buying units of participation.

While most UITFs don’t charge a sales load, they may be liable to pay taxes.

Personal Equity and Retirement Account (PERA)

PERA or Personal Equity and Retirement Account is another investment offered by banks authorized by Bangko Sentral ng Pilipinas. As of today, only BPI, BDO and Land Bank are part of the list.

Its goal is intended for retirement and comes with many tax benefits that are not available in other funds. Fees may be charged though when you redeem your money before attaining 55 years old or passing away.

Exchange Traded Fund (ETF)

An exchange traded fund is organized like a mutual fund. However, you invest not by buying the stocks not from the company but from the stock exchange. Thus, you need a stock broker. In the Philippines, there’s only one ETF and that is the FMETF.

Variable universal life (VUL)

The variable universal life (VUL) is a combination of insurance and investment. It is sold by licensed agents and regulated by the Insurance Commission.

Who offers investment funds?

The following companies offers investments that are pooled together.

Who markets investment funds?

Licensed advisors, called Certified Investment Solicitors, are people who are allowed by the law to market mutual funds.

Bank employees are the people who you can approach for any questions about UITF and PERA.

For exchange traded fund, you can buy actually buy stocks of the First Metro Philippine Equity Exchange Traded Fund (FMETF) on the stock market through an SEC-authorized brokerage company like First Metro Securities, BPI Trade, BDO Nomura, COL Financial, etc.

Investment-linked policies are marketed by licensed advisors who took and passed the VUL licensing exams by Insurance Commission.

What are you buying?

When you start joining a managed fund, you are actually taking part of its investments. To put it in another way, there is actually no difference between the three as all of them operates the same way when they gather money from investors in order to buy securities.

You actually don’t directly own the assets that the fund has. Instead, you own a fractional portion of its total value.

However, each fund has different ways of letting you participate.

  • The money that you invest is used to buy company shares in a mutual fund, making you a part-owner or a shareholder in the investment company.
  • In ETF, you are buying the stocks from the stock exchange through a broker company.
  • In UITF, PERA, and in investment-linked policy, you buy units of participation. Each unit represents the portion of the total fund asset that you own.

What government agencies regulate managed funds?

Different funds have different agencies of the government that oversee them. They are all under the Department of Finance. Their job is to make sure that the interest of the investing public is served and protected at all times.

  • Securities and Exchange Commission regulates mutual funds and exchange traded fund.
  • Bangko Sentral ng Pilipinas regulates UITF and PERA.
  • Insurance Commission regulates investment-linked policy.

Which law governs managed funds?

Mutual fund is governed by Investment Company Act of the Philippines (Republic Act 2629).

UITF is governed by General Banking Law (Republic Act 8791).

ETF is governed by Republic Act No. 2629 and SEC Memorandum Circular No. 10, Series of 2012 – SEC Rules and Regulations on Exchange Traded Funds.

PERA is governed by Republic Act 9505 – (PERA Act of 2008)

Investment-linked policy is governed by The Insurance Code (Republic Act 10607).

What are the characteristics of the managed funds?

Below is a summary of the common characteristics of managed funds:

Mutual FundUITF and PERAETFVUL
Who offersInvestment companiesBanks and trust companiesInvestment companiesInsurance companies
Who sellsSEC*-Licensed advisorsTrust/PERA agentsStock brokersIC**-Licensed advisors
What you buyShares of mutual fundUnits of participationStocksUnits of participation
PricingNet Asset Value Per Share (NAVPS)Net Asset Value Per Unit (NAVPU)Market priceNet Asset Value Per Unit (NAVPU)
Who regulatesSecurities and Exchange CommissionBangko Sentral ng PilipinasSecurities and Exchange CommissionInsurance Commission
LawsRepublic Act 2629 – Investment Company Act of the PhilippinesRepublic Act 8791 – General Banking Law
Republic Act 9505 – (PERA Act of 2008)
Republic Act No. 2629 – Investment Company Act
SEC Memorandum Circular No. 10, Series of 2012 – SEC Rules and Regulations on Exchange Traded Funds
Republic Act 10607 – The Insurance

*Securities and Exchange Commission
** Insurance Commission