Which Equity Funds Are Better, Mutual Funds or UITFs?

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You need to figure out what you need to earn based on the future value of your financial goals

Question: I want to invest in pooled funds that are into Philippine stocks. Which of the two would be better for me, mutual funds or unit investment trust funds (UITFs)?

Answer: To answer your question, we need to do a two-part analysis. First, we need to look at the historical performance of Philippine equity-invested mutual funds (MFs) and UITFs. The source of the analysis is My PF App 2023 of the Personal Finance Advisers.Understand that performance review includes not just looking at actual annual compounded returns but also such returns versus a benchmark and risk measures. Also, let us do three periods of returns as the investment scenario varies over time: five, 10 and 15-year performance all as of the year 2022.

When it comes to tracking errors of equity index funds, the longer the period, the wider the tracking error becomes. Tracking error simply measures how far off the return of an investment is versus its benchmark.

The second and more important part of the analysis deals with you.

You need to figure out what you need to earn based on the future value of your financial goals compared with what you have to start with and what you can periodically add. Performance rankings will vary with the ever-changing investing landscape. What is important is to find that fund that can meet your return demands over the long-run as balanced by your risk preference.

And do not forget that there are also equity-invested single premium variable unit-linked insurance policies that not only invest for you but also provide you with life insurance coverage.

efren cruzEfren Ll. Cruz is a Registered Financial Planner of RFP Philippines. He is best selling book author of Pwede Na! (A Complete Guide to Personal Finance) in 2004, and is the chairman and president of the Personal Finance Advisers Philippines Corporation.

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