Have you decided about getting a VUL yet? I hope my post here will help you make an informed decision.
I probably have written about how much I love Mutual Funds and UITFs as investments for beginners, but some people need a point-by-point explanation.
So, are Mutual Funds and Unit Investment Trust Funds good investments?
Also Read: Mutual Funds and UITFs 101
Mutual Funds and UITFs are basic investment tools for growing your money.
Here’s one thing. My eldest, 20 year old daughter, who has graduated and has passed the board in one of the courses offered by SLU’s College of Natural Sciences, has NO IDEA about Mutual Funds and UITFs and may be prone to make the 4 Money Mistakes that even I do all the time.
And her 11 year old brother knows these beginner investment tools. (They actually teach Money in my son’s school!)
To be financially free, everyone, whether you have a finance or science degree, whether you are still going to school or a new college graduate, whether you prefer science lingo to boring finance terms (my daughter lol) SHOULD know Mutual Funds and UITFs and how they work.
Because MUTUAL FUNDS AND UITFs are your basic investment tools to GROW YOUR MONEY!
What are Mutual Funds and UITFs?
Like I said in previous posts, like this one, Mutual Funds and UITFs are investment products where money is pooled from investors, handled by a professional fund manager, who invests the fund in specific investment option classifications.
Wait, nose bleed…Can you describe that again?
Let me break down the description for you:
ONE – Mutual Funds and UITFs are investment products where money is pooled from investors.
This means that when you get a Mutual Fund or a UITF, your money becomes part of a fund. To make it easier for you to understand, if 10 persons contribute P5,000 each, they will come up with a fund of P50,000.
TWO – The money is handled by a professional fund manager.
The money (P50,000 in the example) that was pooled will be handled by a professional fund manager who is professionally trained to discern where to best place your investment.
THREE – The money is invested in specific investment option classifications.
You can choose where your fund manager can invest your money. To quote my post on Mutual Funds and UITF 101,
You can choose from equity, balances, and fixed-income funds. There are peso or dollar funds. each type has different rules, so it is important to ask the fund manager or the bank. An Equity Fund is mostly invested in the stock market, and therefore offers higher gains, but is also riskier. A Fixed-Income Fund (bonds or money market) is mostly invested in government securities and other fixed-income securities and therefore offers modest returns because it is less risky. A Balanced Fund is invested both in the stock market and in fixed-income funds. The returns here are moderate, but so is the risk.
So, how does investing in mutual funds and UITFs work?
Let’s go back to my previous example.
You, me and another 8 people decided to invest P5,000 each. This money is pooled together, and would result to a total of P50,000.
The P50,000 (pooled money) will be given to an expert professional manager. The professional fund manager, who, by the way, has been trained and is an expert in investing, will be making investment decisions like what company or what asset should he invest the pooled money.
The money will be invested in stocks, bonds, both stocks and bonds or real estate. Where it will be invested will depend on what kind of fund you got.
So how will my fund earn money?
You should always remember that owning a mutual fund or a UITF does not guarantee your earnings.
The value of your investments may go up then down.
So don’t stress yourself! When I first got my UITF almost 12 years ago, I would make a spreadsheet and monitor my Balanced Unit Investment Trust Fund’s value (I got a combination of stocks and bonds) every day.
My advice is since you have a Fund Manager anyway, let his hair go grey, not yours.
And hey, over the years, your fund’s value (like mine did) will GO UP.
For example, here is a chart of just one of the values of a mutual fund over the past 10 years from Jan 2006 to December 2015.
Like a roller coaster, the value goes up then down then up again, but it sure is a steady climb to the top, right?
Now, when you look at the chart, what did you notice?
There was an over 150% increase in 2007 and a dip of almost 100% in 2008.
What makes Mutual Fund and UITF Values go up and down?
The values of an MF and a UITF depend on economic forces. It is the amount of businesses investing in the Philippines and investors going out. It is dependent on growing businesses, government regulations, world events, recessions, oil price, a President being elected, basically anything that affects the economy.
This is the VERY REASON why your investment value cannot be guaranteed. You may look at your investment and realize that your investment’s value went down, but this actually is just paper loss. You haven’t lost until you have pulled your fund out.
This would be the advantage of getting a mutual fund or a UITF.
You don’t need to have your nose buried in the business section of the newspaper.
You don’t need to understand the emerging economic trends.
That is your Fund Manager’s problem!
And since he is trained to understand these things, you can expect him to make informed investment decisions to grow your fund. You can trust him because HE WILL WANT your fund to grow!
How will you know how much you have earned?
To know the current value of your investment, you will need to know your NAVPS (for Mutual Funds) or NAVPU (for UITFs).
NAVPS means Net Asset Value Per Share / and NAVPU means Net Asset Value Per Unit. They basically mean the same thing. When you talk of your Mutual Fund’s Unit Value, you talk about NAVPS. For UITFs, you talk about NAVPU.
The NAVPS or NAVPU can go up or down anytime. I told about checking my UITFs NAVPU every day, right? To tell you the truth, checking your NAVPS or NAVPU everyday is not worth it. (Although it would be great to see the chart of how your fund is growing though.)
The only thing that matters is the NAVPS or NAVPU of the fund when you bought it and when you will sell it.
Otherwise, you gain or loss is just on paper.
Here is an illustration:
Fund 1 has a NAVPU of P10 per share. You buy Fund 1 for P20,000. You then have 2,000 units of Fund 1.
After 2 years, you check on your UITF. The current NAVPU has grown to P20.00. So now you own 2,000 units of Fund 1 with a NAVPU of P20.00.
If you decide to sell your units, how much will the value of your 2,000 units of Fund 1 be?
The value of your Fund 1 will now be P40,000 (2,000 units x P20 NAVPU). Since you originally invested P20,000, you would have practically doubled your investment by earning an additional P20,000 ONCE YOU DECIDED TO SELL!
This is how you will earn from your Mutual Funds and UITFs. You buy, then after sometime, if the NAVPS or NAVPU is ok, you sell. If you are holding on to your funds, your gain or loss will still be, what we call in accounting, Unrealized Gain or Loss. Once you put your funds on sale, will you realize/earn your gain or loss.
Please take note that the returns from Mutual Funds and UITFS are not guaranteed. What I do is buy when the values are low, then leave my Fund Manager to decide where to invest my fund. Once I am happy with my returns, I sell and get my realized gain.
So are Mutual Funds and UITFs good investments?
As for my experience, yes, they are good investments.
And what I like about mutual funds and UITFs are that I don’t really monitor them. My fund manager does the monitoring. You have to be really patient though because your money will not grow OVERNIGHT. It will grow OVER TIME, though. And once it does, sell and get your profit!
So for investments, you don’t really have to get a VUL. For a beginner growing his money, UITFs and Mutual Funds are more than awesome .