BSP cautions investors on risks involving UITFs

By LEE C. CHIPONGIAN

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said investors of the reserve-free unit investment trust funds or UITFs, which replaced common trust funds, should be realistic and not to expect high returns all the time.

Tetangco said UITFs are considered "hot" products right now, compared to other assets including risk-free government securities. However, buyers of UITF should be reminded that these instruments have no guarantee unlike deposits, which have assured returns.

BSP Deputy Governor Nestor A. Espenilla Jr. agreed saying, "interests (earned) in the past will not necessarily be repeated in the future."

Because UITF accounts are completely free from reserves, the BSP will strictly govern the investments of such funds, which are limited to exchange-listed securities.

At the moment, Espenilla said the central bank is planning to improve its trust governance and to strengthen the independence of a trust unit from the bank proper. "We’re reviewing the trust committees and role of independent directors and to clarify their roles (in overseeing trust investments such as UITFs)," he added.

The BSP has cautioned banks against overselling UITFs.

Espenilla told the Trust Officers Association of the Philippines to fully disclose to investors the risk involved in UITF investments.

As part of safety features, the BSP also require UITF assets to be placed under third-party custody by BSP accredited custodians to protect investors from fund manager misconduct and to allow for an independent valuation of the pooled assets.

UITF managers, in the meantime, are required to fully inform their prospective investors of their investment plans or strategy such as what investments to put the assets into.

"Investors must also understand that their principal is not guaranteed by the trustee and it is not covered by deposit insurance. Investment in UITFs are inherently riskier than deposits but may be rewarded with potentially higher returns compared to a deposit," the BSP said.

 

http://www.mb.com.ph/BSNS2006050162776.html