UITF Product Structures, Features, and Eligible Investments
What this domain tests
This domain tests fund classification, open-end mechanics, peso versus foreign-currency products, and the BSP-permitted investment menu. Questions often ask whether a proposed asset is eligible or whether a feature is standard.
Core rules and concepts
- UITFs are open-end collective funds: units are created and redeemed continuously at the prevailing NAVPU, subject to dealing cut-offs and settlement rules. There is no fixed maturity date.
- Common structures include money market, bond, equity, balanced, index, feeder, and fund-of-funds UITFs. Funds may be peso-denominated or foreign-currency denominated.
- Eligible investments generally include deposits, government securities, corporate bonds and commercial paper, listed equities, and units of other permitted investment funds. Derivatives are typically limited to hedging, not speculation.
- Plan rules set concentration and liquidity limits, minimum investment, minimum holding period, redemption notice, and fees. Some funds impose early redemption fees.
- Risk classification should reflect asset mix, credit quality, duration, currency, and liquidity. A balanced fund is not automatically low risk.
Worked example
A balanced UITF holds 60% bonds and 40% listed equities. If equities fall 10% and bonds are flat, the NAV falls by 0.40 x 10% = 4.0%, before fees. If bonds rise 1% while equities fall 10%, the change is 0.60 x 1% plus 0.40 x (-10%) = 0.6% - 4.0% = -3.4%. This shows why asset mix, not the fund label alone, drives risk.
Traps that cost marks
Assuming balanced means low risk; ignoring foreign-currency risk in dollar UITFs; treating any security as eligible; forgetting that derivatives are for hedging; ignoring concentration and liquidity limits in the plan rules.