There are two way to start investing in stocks – direct investing and indirect investing.
Direct investing is when you open your own trading account with a stockbroker company.
I call this direct investing because you do all the activities yourself in this way.
These activities include funding your account, finding which specific stocks to buy/sell (which could demand lots of time of study) and actually executing the buy and sell orders on your computer screen. You totally don’t need anyone, aside from your funded broker account, to make your profits in stock market since you can do all these things at the comfort of your home just with your gadget connected to the internet.
If you want to invest in, say the company that manages and operates the giant SM malls, then you can just log-in to your trading account and buy SMPH stocks (SMPH is the stock code of SM Prime Holdings) even with your smartphone. You can also always see how your money fluctuates with the movement of the market on your gadget screen.
Direct investing could be overwhelming for a beginner as with any undertaking at the start, but it becomes very easy to do once you get the hang of it. If you are serious in actively managing your investment, this could be the path for you. Since you are the direct investor on this, you also take full responsibility for the possible losses you can incur.
For passive investors…
But there are a lot of people who have no time or interest to study about how stock prices move and really monitor their investments on a weekly (or daily) basis but instead just wish to get better returns than what ordinary bank deposits can offer. These people include full-time employees, OFWs abroad or financially-established people or anyone who has excess money to invest on top of their normal daily needs.
They simply want to “invest their excess money” hoping that after some time, they get their money back with decent returns.
That’s where indirect investing comes in, which could be divided into two – UITF (Unit Investment Trust Fund) and Mutual Funds. These two operate very similar since they are just variations of the general pooled investment fund from several investors being invested into a predefined types of investments, and actively managed by a professional fund or investment manager.
I call this indirect investing because the people investing don’t have direct control as to what specific securities the investment fund will buy, except on the allocation of investments of the fund they will choose. In other words, you can choose whether your money will be heavily invested in stocks, bonds, or a mix of both (thus we have the Equity, Bonds and Balanced types of these fund), but you CAN’T control that your investment fund buys shares of SMPH, Meralco or Jollibee for example.
UITF in a nutshell
I have shared in a previous post how you can invest in a mutual fund online. Read here>> How to Invest in Philippine Mutual Funds Online.
UITF operates the same as mutual fund investing wise, except that the fund is managed by a bank in UITF, as opposed to a separate investment company managing a mutual fund.
UITF also just pools the funds of investors to create a large fund which in turn is managed by an investment manager. They are medium- to long-term investments that have historically better earning potential over a long horizon than traditional bank deposits. )I’d recommend giving your money invested in UITF or mutual fund at least five years time horizon).
The greatest advantage UITF (and mutual fund) gives is the professional management of the fund. If the dedicated fund manager is good enough, it could give you better returns that can even beat benchmarks, with you doing nothing. The disadvantage also stems from this fact – UITF has fixed management costs to cover all its expenses, whether the fund perform well or not, thus decreasing your actual earnings.
In the Philippines, most major banks offer UITF investments (see member banks below from uitf.com.ph as of May 6 2017). Individuals can open a UITF account with as low as Php 10,000. This amount already forms part of your initial investment. Once your account is approved, you can add more anytime you want, but this is not a requirement. Still, I suggest that you add regularly and do top-ups remembering that you’re in UITF for the long haul).
UITF also has minimum holding period, so you will incur penalty should you decide to redeem your investments earlier than this holding period.
Opening a UITF in the Philippines
Now I’ll share how I was able to open an UITF account in Security Bank. The process should be the same with other banks as UITF is heavily regulated by Bangko Sentral ng Pilipinas (BSP) to protect the investors. The steps are actually very simple.
Step 1: Fill-up the application form.
You can do this online or in the branch of the bank of your choice.
For Security bank, you can do this online here and clicking the Invest Now button.
You will be guided in answering the application form and once submitted, you will receive in your email a soft copy of your accomplished application forms. Print the forms and bring them to the bank branch nearest to you.
Step 2: Just go to their Account Officers and give the print-outs.
Affix your signature as needed.
Once all is checked and fine, then you will just have to wait for 3-5 days for your account to be approved and created. You will have to go back to the branch at this point to receive your certificate of participation, a proof that you have UITF account with them. This is where the account opening process ends. If the bank has online banking facility, you should be able to see your account in there too .
If you want to add to your UITF, you can do this through online banking, using the Subscribe facility.
You can also monitor your UITF performance online, so you see exact figures how your investment is performing.
Lastly, you can redeem anytime, that is you encash your investment, which in turn will be deposited directly to your nominated beneficiary account you entered during your application. Just take note of the minimum holding period that applies to your fund to avoid the related penalty.
Below is my actual UITF which I opened with the minimum initial investment of 10,000 pesos at the end of March 2017. As of May 5 2017, its market value was at 10,599.53 pesos. Pwede na!
With the good performance of the Philippine stock market recently, the market value of my UITF has increased to 11,005.91 as of June 8 2017. That translates to more than 10% gain in a span of less than three months.
Overall, UITF is a good place to invest your money in for long long-term purposes, (I say, at least five years), like retirement.
If you want your money back in say less than three years, I won’t really recommend it for you.
But if you’re in it for the long-haul, you can try it and reap the benefits of a disciplined long-term investing. Just start initially with Php10k, and you can add say regularly a month, say 2k, and build your wealth through time. Regular addition of investments (or top-up) is not really a requirement when you invest in UITF, but history has shown that doing Peso Cost Averaging with pooled funds like UITF (and Mutual Funds) can be good in the long run.
For a more comprehensive review and comparison of UITF performances of different Philippine banks, you can visit www.uitf.com.ph.
Just remember that with any other legitimate investment, past performance is not a guarantee of its future performance.
Author: Omeng Tawid
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