Where to put your money (Part 2)

WALKING into a bank can sometimes be a feat especially if you have extra funds, the earnings of which you want to maximize, but don't quite know which bank product to get in order to secure that need. There are three important things to remember when it comes to investing: return on investment, security, and flexibility. Never be ashamed to haggle rates with your personal banker no matter how little amount you have with you, save of course, for some products that have fixed rates like your savings account. It is appropriate to ask where the bank will invest your funds and know how flexible they can be in liquidating your proceeds when you need to withdraw your money before maturity date.

Common Trust Fund. Filipinos abroad can derive long-term financial benefits by putting their excess money in CTFs or Common Trust Fund. When you open a trust fund, you are actually intending to set aside this sum for a future need like putting up a business, tuition fees of your kids, your personal retirement fund, or maybe a future project like the purchase of a house and lot.

In opening a common fund, you as a trustor, are joining a pool of other trustors or clients who also invest in the CTF, thus, the name common fund. The bank or trustee, will assign you a corresponding certificate where the investment amount and the number of participating units in the pooled fund is indicated. The amount of participating units, commonly known as par, varies depending on the amount of your investment. Thus, a bigger principal amount means more number of participating units.

Each unit of participation has a corresponding market value that fluctuates daily as the investment rate changes and as the pooled fund increase in value due to the compounding effect of the returns earned by the fund. The essence of joining a common trust fund is that for usually a small amount of investment, say a hundred thousand, you can enjoy a rate of return that normally only a million-fund level can earn if it were invested in an ordinary time deposit. This is because a common fund has the benefit of getting access to higher-yielding instruments due to the joint effort that the investors get into by joining the pool.

Some banks in the Philippines have recently launched new CTF products that offer withholding tax exemptions for the long-term stay of funds. Rizal Commercial Banking Corporation, for example, launched the Super Fund (also known as Super Yaman in their Remittance Centers abroad) that offers exemption of 20% withholding tax if you don't withdraw your investment for 5 years. It also has a graduated tax-exemption scheme which posts only 5% tax if withdrawn between 4 to less than 5 years, and 12% tax between 3 to less than 4 years. These tax incentives actually maximize the rate of return of your fund and likewise encourages investors to save on a long-term basis. Add to this is a special feature which gives the trustor an automatic accident insurance coverage which is double that of the invested principal amount.

Metrobank likewise launched their Metrofund Extra but with a bigger opening requirement at P100,000 for the Bronze Fund, P500,000 for the Silver Fund, and P1,000,000 for the Gold Fund. Like RCBC, Metrobank also offers the same graduated tax-exemption incentives for investors. As add-on frills, both universal banks offer credit cards with first year annual dues waived. Both types of CTFs are invested only in fixed-income securities or investment outlets that carry fixed rates of return. Prime loans, government securities, and commercial papers are considered fixed-income investments as they are booked at fixed rates for a specified period of time.

Tip: Before investing in any type of CTF, ask the bank whether the investment outlets include stock investments. There are other types of CTFs that carry a mix of both stocks and fixed-income securities. Common trust funds with exposure to stock investments are subject to very volatile return on investment as the earnings of the pooled fund rely on the fluctuations of share prices in the stock market. Depreciation of your principal fund is the last thing you want to happen to hard-earned money so be sure that you choose a CTF with no stocks exposure unless you really have lots of excess funds that you can gamble in the stock market.

When authorizing your representatives to invest in a trust fund for you in the Philippines, take down the par indicated in the certificate of participation, as this will guide you in computing the market value of your fund. As soon as you have noted down your number of participating units, you can compute the market value of your fund at any certain date by multiplying this with the MVPU (market value per unit) of the specific CTF you invested in. Try logging on to the websites of universal banks and notice that they also post the different MVPUs of their CTFs daily. Make use of this technology as a way to monitor your investment fund level. All is well to he who invests well. *

Renzi is a graduate of Economics with a Masters Degree in Business Administration from the University of St. La Salle. While working full-time in the Trust & Investments Division of one of the 10 largest banks in the Philippines, she dabbles into writing and does mountain biking as her weekend hobby. You may email the author at renzijuarez@philippinestoday.net

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