Defining unitized investment trust fund

Second of a three-part series

In the first part of these series, you have hopefully appreciated the importance of marking-to-market investments. It is the way to go if we want to make our investment climate at par with international best practices.

The Bangko Sentral ng Pilipinas (BSP) will soon issue the proposed unit investment trust fund (UITF) circular. It hopes to align the local pooled funds managed by trust entities with global standards, and ensure the china wall/distinction between bank deposits and trust products. The BSP likewise hopes to professionalize the asset management and trust industry by enhancing its credibility to the retail investors. It is anticipated that the effect would spill over to improving our capital market.

UITFs defined. UITFs, as defined in the circular, are "open-ended pooled trust funds denominated in pesos or any acceptable currency, administered by a trust entity and made available by participation". The open-ended nature of a UITF allows participation or redemption as often as stated in the Fund’s plan rules.

CTF and UITF differentiated. A UITF is synonymous to CTF. What then differentiates the two? The most glaring difference between the two is the valuation methodology. CTF is valued based on the traditional way of accruing or adding interest on investments to the principal. UITF is valued based on the market value of each investment in the Fund.

Under the UITF regime, allowable investments include the following:

(a) bank deposits, (b) securities issued by or guaranteed by the Philippine government, or the BSP, (c) tradable securities issued by the government of a foreign country, or any supranational entity, (d) exchange-listed securities, (e) prime grade loans and/or non-risk loans, (f) any other marketable securities and/or liquid investment outlets/categories as the BSP may allow.

To ensure the competence and integrity of all UITF marketing personnel, the UITF circular also mandates that these marketing/sales personnel undergo a standardized training program.

In the last leg of these series we shall discuss the impact of the UITF circular on CTF investors.

To be continued

(Courtesy of BPI Asset Management)