(CNN Philippines) — Common misconceptions on investing may discourage young professionals from growing their money properly.
These misconceptions may even hinder some from investing, particularly in Unit Investment Trust Funds (UITF). A form of common trust fund, the UITF involves buying into units of a pooled fund whose value changes based on market rates. A client only needs to accomplish a Declaration of Trust with the bank. The investment then earns without additional requirements from the client.
Here are 5 common misconceptions of new investors:
1. Myth: You have to be old and experienced to begin investing
Reality: The best time to invest is while you’re young.
A number of people may have the impression that it is better to wait for better times before investing — perhaps when stocks are cheaper or a better income stream is yet to come. But time-bound funds need immediate investment decisions.
On average, moderate investments last for at least a year. For conservative packages, the shortest is three to six months. The so-called aggressive type can last for up to three years.
Investing while you’re young means you have time to choose from a menu of maturities depending on your projected financial needs. It helps to heed the time-tested rule: “It’s time in the market not timing in the market.”
2. Myth: Investing in UITFs is expensive and requires a lot of starting funds
Reality: You can start investing in UITFs with just P10,000
Investing in UITFs is affordable. In fact, you can begin with just P10,000, with a participation fee of about half the price. Management fees are charged directly to the investment itself, so these are not separate expenses. While UITFs can be affordable, it does require a client’s commitment to get the best returns.
“Most UITFs are considered medium to long term investments,” the Trust Officers Association of the Philippines (TOAP) advises on its website. “Clients… must have the financial resources to stay invested for a reasonable period of time in order to maximize earnings potentials.”
3. Myth: Investing is only for financial risk-takers
Reality: You can tailor your investment depending on your risk-appetite
Others shy away from investing because of the impression that losses may be huge and could occur too often. This is not always the case. Some banks, like Security Bank, place their investment options on their websites with information on the risk-type of the investment — from conservative to aggressive, along with expected time ranges and rates. By using their UITF calculator, you can determine what type of investor you are and what type of investment best suits you.
For conservative and short-term investors, money market UITFs are recommended. They run for about a year and are placed in special and time deposit accounts to mature at a given date with minimal risk. Bond UITFs (Intermediate Term, Peso, and Dollar Bond Funds) have longer maturity dates because they lend money to corporations and the government through bonds; the debt is paid with higher returns, but with a lower risk than other forms of investments. Variety Funds combine fixed income and equity investments to balance medium and high risk. Finally, more aggressive risk-takers would prefer stock or equity funds (Philippine Equity Index, High Dividend Peso Equity, and Peso Equity Funds) where all their investments go to stocks, which are naturally more volatile.
4. Myth: You need to be financially savvy to start investing
Reality: You don’t need to know anything about investments to invest in UITFs
Another misconception surrounding UITFs is that you personally need to have the financial know-how to handle your investments. But UITFs are newbie-friendly as they are handled by full-time professionals. With their experience and expertise, these fund managers are guaranteed to always try to make the most of your money for you. Financial institutions like Security Bank also take the time to explain the status of your funds, along with other technicalities that may be difficult to understand.
5. Myth: You don’t have control of your money when investing
Reality: Money management can be accessible to you too.
Transparency is key to investing and with UITFs, it’s easy to track how the fund is doing. Click here to view the NAVPU (Net Asset Value per Unit) of UITFs. Reports are published regularly, which “[allows] investors to compare [the] performance of various fund managers,” says the TOAP.
Moreover, UITFs are a regulated product, so the BSP oversees their management. It audits UITFs annually and assigns an accredited custodian to perform safekeeping duties; the results of the audit are also made available to clients.
Finally, due to liquidity, clients can redeem units of participation anytime. The mode of withdrawing funds differ according to plan rules.
That’s not to say that UITF investing is totally risk-free. Interest rates could change, market prices could drop, assets could go unsold and unconverted, or borrowers may be unable to repay their debt. As the economy and market constantly change, so will the value of the UITF; so income is not fully guaranteed.
However, in some situations, withdrawing the fund can be postponed until market prices improve. The TOAP also writes that risks are spread due to diversification, and that the potential for high returns remains due to “possible market-to-market gains. ” Despite market uncertainties, the benefits of UITFs stand: affordability, professional fund management, diversity, liquidity, and transparency.
So if you’re looking for a low maintenance but long-term financial investment, UITFs may be the way to go. If it doesn’t work for you, then there are other ways to invest: mutual funds, fixed income securities, and insurance plans, among others. Across all these investing opportunities, one thing remains: Today is the best time to invest.
Want to learn more or start investing? Visit Security Bank’s UITF page or email their team of financial experts at trustmarketing@securitybank.com.ph.
