Have you recently decided to start investing but don’t have the time or knowledge to monitor your investments? Are you opting to choose investment funds that provide professional management of your investment? Should you invest in a variable universal life insurance, a mutual fund or a UITF?
On today’s post, I will be giving you a broad overview of each product to help you make the right decision – differences and similarities, pros and cons, and advantages and disadvantages.
Mutual funds, UITFs and VULs –
ALL are types of investments but they differ in format.
In simple terms, all of them are investment products. They are pooled funds – wherein sums of money from many people are collected into a large fund that is then spread across many investments and managed by professionals.
To briefly describe each investment…
Mutual funds are pooled funds that are set up as a corporation and managed by a fund manager. Each investor is a shareholder of the fund corporation. (Read more: WHAT is a Mutual Fund? and HOW Do You Make Money From Mutual Funds?)
Unit Investment Trust Funds (UITFs) offers access of investments is through the trust of the bank. The investor is a participant of a fund.
Variable Universal Life insurance (VUL) is an financial product that has a life insurance component together with the fund investment (aka VUL is both an investment and an insurance.) It offers the security of insurance protection via term coverage, together with the opportunity to participate in potentially unlimited growth via mutual fund investments.
How are they different from one another?
| Where to open an account? | Investment Companies (ALFM Mutual Funds, Philequity Management Inc, First Metro Asset Management and Sun Life Asset Management.) | Banks (BDO, Metrobank, BPI, PNB, Landbank, UnionBank, etc) | Insurance Companies (Sunlife Financial, Philam Life, Pru Life UK, AXA) |
| Who should you talk to when to open an account? | a licensed mutual fund advisor | a bank employee or a trust representative | an insurance agent |
| How much money do you need to open an investment? | Minimum initial investment: Php 5,000 Minimum additional investments: Php1,000 | Minimum initial investment: Php 10,000 Minimum additional contribution: Php 1,000 | Premiums can be paid monthly, quarterly, semi annual, annually or one time payment. Monthly premium can be as low as Php 1,500. |
| Are there any fees? | Sales Load Fees (Upfront Fee) 1%-2% upon entering the investment Annual Management Fees Early Redemption Fees Some fund houses offer ZERO back-end fees if one is locked in for 5 years. This is to encourage long term investment | Sales Load Fees (Upfront Fee) 1%-2% upon entering the investment Annual Management Fees Early Redemption Fees | Upfront Fees Annual Management Fees Insurance Charges |
| Are my earnings taxable? | Exempted from withholding tax or tax on profit Subject to Estate Tax if the investor dies. | Subject to withholding tax or 20% tax on profit. Subject to Estate Tax if the investor dies. | Exempted from withholding tax or tax on profit No estate tax |
| Who regulates the investment product? | Securities and Exchange Commission (SEC) because the investment company is a corporation | Bangko Sentral ng Pilipinas (BSP) because the trust of the fund is a bank | Insurance Commission (IC) because the investment product has an insurance component |
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So which is the best investment product for me?
It depends on where you are in life, your financial status, investment goal and objectives.
If you want the protection of life insurance, go for a VUL. VUL is a financial product that offers the best of both worlds – guaranteed insurance benefit and fund accumulation. The only downside is that it is more expensive. In effect, you really are paying extra for the ‘convenience’ of paying for a life insurance and an investment at the same time. BUT, since it is an insurance product, while all other assets (including Mutual Funds and UITFs) will be frozen by BIR until the appropriate taxes are paid, investments in a VUL are readily available to your loved ones.
If you want to put your money in investments (aka in the long-term), UITFs and mutual funds can work for you. (UITFs and Mutual Funds are basically works the same way, it’s just being managed by two different entities.) A big advantage of these is that they are professionally managed by experienced investment managers, who are trained to invest properly. Even if you yourself are not well-versed in investing, you can rest assured that you’re in good hands.
My Personal Take…
For me personally, to avail of ‘similar’ benefits of a VUL, I’d rather buy term insurance (cheapest form of insurance) that provides a similar coverage as a whole life policy and then invest the difference in either mutual funds or UITFs. It does require effort on my part to look for separate term insurance and investment products and pay them separately. But this way being cost-effective is much more advantageous in the long run, since I am able to add a little more money into my investments.
photo credit: Coffee break. via photopin (license)
Its a good learning.
Very impressive. But I consider the fund stats before investing. History can reflect on what will happen on the future. On my personal take
hi and good day. I am planning to invest on Mutual Funds but my problem is I already invested a lot in stocks. I invested in stocks last year and I now how have almost 50k worth of shares (I know it’s not that much compared to others) but my problem is I would like to invest again but I don’t know where. I would really love to invest in Mutual Fund but i have the impression that fund managers would invest my money in stocks too. I can’t diversify my investments if my new investment would go to the stocks again, can someone please help me?
would you consider a stock market portfolio as a retirement fund?