Investing in managed fund: mutual fund, UITF, VUL

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A managed 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 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

As you know, there are many different ways to invest your money with the expectation of getting something in return. 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, which are stocks that are traded in Philippine Stocks Exchange (PSE), bonds and other similar paper assets.

Investing in managed fund

A managed 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. Instead, you open an account and they do everything that has do with investing 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.

What are the different managed funds?

There are three types of managed funds in Philippipnes, namely:

  • Mutual fund (MF) is an independent investment company that operates managed funds.
  • Unit-Investment Trust Fund (UITF) is an asset management unit of a bank that operates managed funds.
  • Investment-liked policy (ILP) is also called variable universal life (VUL) insurance policy, which is an investment-linked contract for insurance companies.

Who offers managed funds?

The following companies offers investments that are pooled together.

  • Investment company offers mutual funds. An example is First Metro Asset Management Inc. (FAMI), sister company and investment arm of Metrobank.
  • Banks offer unit-investment trust fund, such as Metrobank, through its trust entity or asset management unit.
  • Insurance company like Axa Philippines, sister company and insurance arm of Metrobank.

Who markets managed funds?

  • Licensed advisors, called Certified Investment Solicitors, are people who are allowed by the law to market mutual funds.
  • Bank employees, who are not necessarily trust-licensed, are the people who you can approach for any questions about UITF.
  • 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 UITF and in investment-linked policy, you buy units of participation. Each unit represents the portion of the total fund asset that you own.

How is the pricing expressed?

Different types of funds haves of pricing.

  • For mutual fund, the price of each stock is called Net Asset Value per Share (NAVPS).
  • For both UITF and investment-linked policy, the price of each unit is called Net Asset Value per Unit (NAVPU).

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.
  • Bangko Sentral ng Pilipinas regulates UITF.
  • 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).
  • 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:

FactorsMutual FundUnit-investment Trust FundInvestment-Linked Policy
Who offersInvestment companiesBanksInsurance companies
Who sellsSEC*-Licensed advisorsBank employees – not necessarily licensedIC**-Licensed advisors
What you buyShares of mutual fundUnits of participationUnits of participation
PricingNet Asset Value Per Share (NAVPS)Net Asset Value Per Unit (NAVPU)Net Asset Value Per Unit (NAVPU)
Who regulatesSecurities and Exchange CommissionBangko Sentral ng PilipinasInsurance Commission
Which law governs managed fundsRepublic Act 2629 – Investment Company Act of the PhilippinesRepublic Act 8791 – General Banking LawRepublic Act 10607 – The Insurance Code

*Securities and Exchange Commission
** Insurance Commission