Thursday, April 19, 2018
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BSP issues new rules on UITF

Expanding investment options

REGULATORS have approved new rules that would allow unit investment trust funds (UITF) investors to earn more from their holdings.

In a statement late last week, the Bangko Sentral ng Pilipinas (BSP) said it was allowing UITFs to make payments in the form of additional units to investors, similar to the way some companies distribute profits to shareholders in the form of stock dividends.

UITFs work by pooling investors’ money in one fund, which is then managed by a bank. This cash is invested in various securities, including stocks, bonds and currencies, depending on the objectives of the fund.

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Investments in UITFs is done through the purchase of units, which are similar to shares of stock in corporations.

“The unit paying UITFs will invest in various income-generating securities and, upon determination of the trust entity, shall give out the income in its equivalent units, for automatic redemption,” the BSP said in the statement.

The new rules for unit-paying UITF features that would provide non-guaranteed income for participants were approved on April 8.

“The unit paying UITF will enable the investor to enjoy the fruits of his investment without the need to redeem his actual principal investment,” the BSP said.”

“It is also expected to expand the investment choices of the investor, thereby allowing him more opportunities for diversification,” it added.

Previous to this, UITF regulations did not allow the distribution of income to the participants. Any money earned by UITFs was automatically reverted to the fund. Investors make money only when they redeem their shares.

Income distribution will come from cash dividends or coupon or interest earned and received from securities that UITFs are invested in. However, payments will not be guaranteed and will be determined by the trust entity in accordance with the plan rules, the BSP said.

Unit payments will also decrease the net asset value of the fund and, consequently, result in a decline in the net asset value per unit (NAVPu) similar to the effect of dividend declaration on stock prices.

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