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Tuesday, May 3, 2011

Differences between Mutual Funds and UITFs


Differences between Mutual Funds and UITFs

Here it is the summarize of basic differences between Mutual Funds (MFs) and Unit Investment Trust Funds (UITF).

Comparison of Mutual Funds and Unit Investment Trust Funds


MUTUAL FUNDS
UITFS
Offered By
Investment Companies
Banks
Fund Manager
Appointed by the investment company
Trust Group of the bank
Price
NAVPS
NAVPU
Fees
Entry Fee; Exit Fee
Trust Fee
Applicable Law
Investment Company Act of the Philippines
No specific law although banks are governed by the “General Banking Law”
Regulatory Body
Security Exchange Commission
Bangko Sentral ng Pilipnas
Sales agents
Must be licensed
No license necessary




Offerer - Mutual Funds are offered by investment registered companies. Therefore, when you buy a mutual fund shares, you become a stockholder of the said company and you have a privilege same rights of a regular stockholder, including right to vote and right to receive dividends, among others. UITF, is a trust product of banks. When you buy a UITF, you buy investment units only, not shares of the company. Therefore, you do not acquire shareholder rights in that bank. A UITF, although a bank product, is not a deposit product which means it is not covered by the Philippine Deposit Insurance Corporation (PDIC).

Fund Manager - In mutual funds, money is entrusted to a full-time professional fund manager appointed by the investment company. In UITFs, money is managed by the Trust Group of the bank. 

Prices - The price of a Mutual Funds share or a UITF unit is measured by its current net asset value. The Net Asset Value (NAV) is simply the difference between the values of the fund’s assets less total liabilities. This total NAV is divided by the number of Mutual Funds shares or UITF units outstanding. In the case of mutual funds, this is called NAVPS (Net Asset Value per Share) while in the UITFs, is called NAVPU (Net Asset Value per Unit).

Fees - Investments in mutual funds are charged sales loads, which may be in the form of entry or exit fees. Entry fees are outright expenses charged prior to opening a mutual fund account. Exit fees, or redemption fees, are charged when shares are redeemed and converted to cash. UITFs don’t have entry or exit fees, but are charged a management or trust fee, which is usually a certain percentage of the invested amount.

Applicable Law - “Investment Company Act of the Philippines” governs mutual fund companies. While UITF products, are not governed by any specific law at present but since they are offered by banks, they are still under Philippine banking laws.

Regulatory Body - Mutual funds are registered companies, therefore, they are regulated by the Philippine Securities and Exchange Commission (SEC). UITFs, as bank products, are regulated by the Bangko Sentral ng Pilipinas (BSP).

Sales Agents. To be able to sell mutual fund shares, a person must be a Certified Investment Solicitor, a license given by the SEC to people allowed to sell mutual funds. UITFs, on the other hand, are offered by people who may or may not have the SEC license. These are usually staff in bank branches.


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