Before anything, let me start by saying we are not blaming Banco de Oro on why we are losing money instead of gaining some on our UITF investment placed with their bank 7 years ago. Or maybe just a bit? Hahah
Okay, back in 2013, Titus and I started to explore investments. We were thinking about the best financial instrument to place our extra funds in, we were considering UITFs, Mutual Funds, Stocks, and Insurance.
Finally, we decided to open a UITF account in BDO under Titus’ name and opted to go for the BDO Peso Balanced Fund. We placed the minimum amount of P10,000. That was May 2013. Today is June 2020. 7 years has passed.
The reason we went with BDO UITF for our very first financial investment was because of the good experience of Titus with a particular branch of BDO.
*When we were about to get married, he requested the bank manager for a credit card so we can use it for some of our projected wedding expenses; he was entertained, his application accepted and eventually approved, despite being an online freelancer.
In those days, the general public knew little about online freelancers, of which we both were. When you try to explain that it’s a work from home set-up with clients from abroad and yes, it’s a job and you earn per project or contract – you get blank stares in return.
The Philippine online freelancing industry was in its infancy back then. So even if a freelancer shows proof of financial capacity like submission of monthly paychecks or even presentation of ITR to a bank, to apply for credit cards, car loans, housing loands, and business loans, etc., chances are you will be denied. Why? Simply because WFH online freelancing was new then and the very concept creates confusion even among most bank personnel.
Anyhow, with the previous good experience in BDO and with an extra P10,000 earmarked for the first investment, Titus and I went to a BDO branch in Cebu and placed the extra funds in a UITF.
WHY INVEST IN UITF?
Because it is accessible, you just go to the bank, bring the required valid IDs, select which particular UITF fund you want to participate in that fits your investment profile, and then give your money to the bank personnel.
After processing, you will be issued a COP or Confirmation of Participation which will indicate how many units you have acquired with your placement and the value per unit or the NAVPU.
NAVPU means Net Asset Value Per Unit. Every banking day the NAVPU changes.
Our P10k BDO Peso Balanced Fund UITF placement was able to buy 2.3982 units.
Now, if we will redeem this investment, the proceeds that we will get will be 2.3982 x NAVPU of the redemption day.
The NAVPU value reflects the current market prices of the various investments that comprise the chosen UITF fund.
Reminder: UITFs are not covered by PDIC.
INVESTMENT GAIN or LOSS?
Fast forward to June 2020, unfortunately, from our P10,000 placement, the value now of our BDO UITF Peso Balance Fund investment is a little over P7,000. Lugi close to P3,000. Lol.
This is the UITF value now as seen on Titus’ BDO online banking dashboard. Check the “Unrealized Gains/Loss” column.
It is still called as unrealized gains or loss because we have not redeem the UITF yet. Right now, it is paper loss. If we redeem today, then it will become an actual loss.
The amount on that column changes regularly depending on the day’s NAVPU. We checked today the latest NAVPU and it’s for June 2, 2020 which is 3070.6049.
Below is how to compute the current value of the UITF:
No of units we got: 2.3982
NAVPU June 2, 2020: 3070.6049
If we will redeem today, we will get 2.3982 x 3070.6049 = Php 7,363.92
Same amount as in the “unrealized gained/loss” column.
For added info, you can check the BDO Peso Balanced Fund NAVPU history.
Why did the placement from P10K was reduced to P7K+ now?
Good question hahah. Anyhow this is what we think, we could be wrong. We recommend doing more research on UITF for more perspectives and knowledge.
First, because UITF funds are managed by a fund manager and that there is a management fee involve in this particular financial instrument.
We checked with the BDO website and sees that for the BDO Peso Balanced Fund, the management fee is 1.00% p.a. So automatic agad na bawas yung placement mo dyan pa lang, and it’s charge on a yearly basis, so minus ng minus.
Second, the performance of the fund also depends on the expertise of the fund manager and on where he or she puts in the pooled money and if his/her placement generated earnings. Banks hire professional fund managers. If hindi magaling ang fund manager assigned to a UITF, the fund’s value tend to be negatively affected. If magaling, the fund will prosper.
*If the fund performs well, madaling mabawi yung 1.0% na management fee.
Third, extraordinary market dip.
Example, when Manila was placed on quarantine last March, almost all of the Philippine Stock Exchange traded stocks took a nose dive in that first week of ECQ. Now, if the UITF fund manager placed most of the pooled fund in stocks, even if placement is strictly on blue chips companies, wala pa ring ligtas, the fund will be hit kasi sobrang bumagsak ang PSE that time. Following this scenario, it is also but natural for the NAVPU to decrease too.
Fourth, our investment strategy of place and forget was not appropriate for this financial instrument. See next section for explanation.
There could be more reasons other than those four we thought about. Explore more about UITFs.
Investment Lesson We Learned
What we did with that UITF via BDO was put in the P10k and forget about it. We were thinking then that there will be gains after x number of years. As it turns out, this is not the best approach for UITF, because as you see based on our actual experience, we are losing money.
We think now that the best strategy for a UITF investment is to add-in to it regularly. Top-up or purchase additional units every 2 weeks, every month, every quarter, etc.; add to your investment on a schedule.
Go for Cost Averaging Strategy. You contribute regularly or put in additional fresh fund no matter the state of the market, no matter the NAVPU. You top-up on a predetermined schedule. This way your investment will average out over time.
I’ll try to share more info on what we understand about cost averaging and how this strategy works, on a different post here in Penfires.
You might be thinking why are we not redeeming the UITF placed in BDO when we see the value is eroding more and more? Well, we haven’t really talk about it seriously yet.
Plus, I guess there is an emotional factor involved, that this is our first investment, and maybe, accept the negative as ‘tuition fee’ for dipping our toes in financial investments? We have learned since then and our newer investments are giving us good ROI.
But hmmm, times are challenging now, maybe we should redeem asap, especially that we are back based in Cebu and can go visit the bank. Maybe we will. Hehhe.
If you are a newbie investor, don’t rush into things. Do due diligence on where you’ll put in your hard-earned money. Choose your investment well!