TOPIC 20: STOCKS, BONDS, MONEY MARKET UITF, MUTUAL FUNDS, FOREX CRYPTO, ETF, REITS (PPT)

Investing

The act of allocating resources, usually capital, with the expectation of generating an income, profit, or gains (Picardo, 2022); to commit money in order to earn a financial return (Merriam Webster).

Saving

Kept in the form of cash or cash equivalents, which are exposed to no risk of loss but also come with correspondingly minimal return (Picardo, 2022).

Reasons to Invest

1. Inflation,

2. Source of Income,

3. Build Wealth,

4. Attain Financial Goals

Concepts in Investing

1. Compound Interest,

2. Risk vs Reward,

3. Diversification

Compound Interest

The calculated accumulated interest and principal which allows the investment to grow from the initial amount.

Risk vs Reward

Investing involves a direct relationship of risk and reward wherein low risks returns low rewards.

Diversification

A strategy that allows investors to manage risks by investing assets across different platforms.

Investment Purpose

To grow your money for long-term goals, for yourself, and family.

Insurance Purpose

To ease the burden of beneficiaries in case of contingent events, for yourself, and family.

Investment Providers

• Banks,

• Investment Houses,

• Brokers.

Insurance Providers

• Insurance Companies,

• Mutual Benefit Associations,

• Cooperative Insurance Societies.

Investment Regulators

• Securities and Exchange Commission,

• Bangko Sentral ng Pilipinas.

Insurance Regulators

Insurance Commission

Shares

Partial ownership of a company, a form of security that is issued by companies to raise capital to grow the business or undertake new projects.

Stock Market

A platform where stocks are generally bought or sold.

Philippine Stock Exchange (PSE)

The governing body of the Philippine stock market.

Equity

The amount of money that would be returned to a company’s shareholder.

Market Value

The current price of stock at which it can be sold.

Par Value

Determined by the company and remains stable over time.

How to Profit in Stocks

• Capital Appreciation,

• Dividend

Capital Appreciation

The price increase of the share wherein the succeeding worth of shares would be higher; the difference between the purchase price and the selling price of an investment

Dividend

Amount of share in the company's profit which is declared by the company, paid out in the form of company shares, and it's not taxable until the shares are sold

Bonds

A fixed-income instrument that represents a loan made by an investor to a borrower, usually companies and government units.

Types of Bonds

1. Secured Bonds,

2. Unsecured bonds

Secured Bonds

collateral or loan is pledged to the lender

Unsecured bonds

no collateral backing with small investment return.

Coupon

Periodic interest payment that the bondholder receives during the time between the purchase date and maturity date.

Term of Bond

Fixed period of time (in years) at which the bond is redeemable as stated in the bond certificate.

Fair Price of Bond

Present value of all cash inflows to the bondholder.

Types of Bonds in the Philippines

1. Government Bonds

2. Corporate Bonds

Government Bonds

placed up for auction with institutions that have the capacity to distribute it further to the retail investors, or sold directly to the general public.

Corporate Bonds

issued by private corporations listed on the stock exchange

How to Profit in Bonds

1. Coupon Payment

2. Convertible Bond

Coupon Payment

refers to the annual interest paid on a bond that is expressed as a percentage of the face value and paid from issue date until maturity

Convertible Bond

conversion of bonds to stocks or a hybrid of the two.

Money Market

Type of open-ended mutual fund that invests in highly-rated, short-term debt securities, generating income through capital appreciation.

UITF

Unit Investment Trust Fund

TOAP

Trust Officers Association of the Philippines

Trust Officers Association of the Philippines (TOAP)

An organization established in 1964 as one of the oldest professional associations in the financial industry. is responsible for the objectives of uniting, professionalizing, and promoting the Philippine Trust and Investment Management Industry.

Examples of Trust Entities accredited by TOAP

1. Universal and Commercial Banks,

2. Thrift Banks,

3. Non-Bank Financial Intermediaries (NBFIs)

Universal and Commercial Banks

Banks that offer a wide range of banking and financial services, including insurance and banking.

• UnionBank

• Security Bank

• Eastwest Bank

• BDO Private Bank

• AUB

• Landbank

• RobinsonsBank

Thrift Banks

Also known as Savings and Loan Associations (S&Ls), they are banks that offer savings accounts and originate home mortgages for consumers.

• Citystate Savings Bank

• PSBank

• Business Bank

• Sterling Bank of Asia

Non-Bank Financial Intermediaries (NBFIs)

A financial institution that doesn't have a full banking license and cannot accept deposits from the public but still facilitates other financial services.

• BPI

• Philippine Commercial Capital

Trust Fund

Also known as Personal Trust Funds or Personal Management Trust, is a type of financial estate planning tool that allows you to let a legal entity hold your property or assets for a person or an organization.

Unit Investment Trust Fund (UITF)

An open-ended pooled trust fund in peso or in any acceptable currency that is operated and administered by a trust entity and made available by participation.

Open-ended pooled trust fund

means that a client can invest or place his/her money or withdraw their investments at any time as long as they follow and are subject to the entity’s guidelines.

closed-end fund

has its fixed number of shares and is traded offered by an investment entity.

Pooled Fund

a collective investment scheme. key concept to how UITF works

Allowable Investment Outlets for UITF

1. FIXED INCOME,

2. EQUITIES

FIXED INCOME

Deposits, Government Securities, Corporate Bonds

EQUITIES

Common Shares, Preferred Shares

UITF Classifications / Types

1. Money Market Funds,

2. Bond Funds,

3. Balanced Funds,

4. Equity Funds

Money Market Funds

Invested principally in short-term, fixed income deposits and securities with a portfolio duration of one year or less.

Bond Funds

Aims to invest in a portfolio of bonds and other similar fixed income securities with a portfolio duration which may exceed one year.

Balanced Funds

Aims to invest in a more diversified portfolio of bonds and stocks where investments in stocks shall be up to a 40% to 60% of the fund, with the balance invested in fixed income securities.

Equity Funds

Aims to invest substantially in equities. Cash maybe kept for liquidity and portfolio rebalancing purposes.

Equities

Refers to the total assets minus the total liabilities.

Financial Portfolio

Refers to the collection of financial investments such as stocks, bonds, cash, and other commodities.

Benefits of Investing in UITF

1. Diversification,

2. Liquidity,

3. Affordability,

4. Better Earning Potential,

5. Exempt From Reserve Requirement,

6. Professional fund management,

7. Transparency regulated products

Risk of Investing in UITF

1. Interest Rate Risk,

2. Market/Price Risk,

3. Liquidity Risk,

4. Credit Risk

PIFA (Philippine Investment Funds Association)

Formerly known as ICAP or the Investment Company Association of the Philippines.

• A government agency that focuses on protecting the interest of the investing public and making them more knowledgeable about their investment options and risk tolerance.

PDIC (Philippine Deposit Insurance Corporation)

Formerly known as FDIC or the Federal Deposit Insurance Corporation.

• provides depositor protection and helps maintain stability in the financial system.

Mutual Fund

A pooled investment fund from many individuals and institutional investors to form a massive asset base.

Types of Mutual Funds

1. Stock/Equity,

2. Bond,

3. Index Fund,

4. Balanced Fund,

5. Bond Fund/Fixed Income,

6. Money Market Fund,

7. Feeder Fund,

8. Funds-of-Funds,

9. Multi-asset/Asset Allocation Fund

CIS

An investment fund used for collective investment by investors. Their money is invested on a pooled basis by an investment manager in return for a fee.

BSP (Bangko Sentral ng Pilipinas)

maintains the floating exchange rate system. Exchange rates are determined based on supply in the foreign exchange market.

Foreign Exchange

Also known as FOREX or FX, is simply the conversion of a currency to another currency.

Foreign Exchange Market

A market in which one currency is exchanged for another currency.

Appreciate

When the value of a currency increases relative to another currency.

Depreciate

When the value of a currency decreases relative to another.

exchange rate

is the price of a unit of foreign currency in terms of the domestic currency.

Cryptocurrency

Decentralized digital payment method that operates independently of banks. It facilitates peer-to-peer transactions globally.

Blockchain

Cryptocurrencies run on a distributed public ledger called _______, a record of all transactions updated and held by currency holders.

Mining

Units of cryptocurrency are created through a process called ______, which involves using computer power to solve complicated mathematical problems that generate coins.

Digital currency

Owning cryptocurrency does not own anything tangible. It is rather a key that allows you to move a record or a unit of measure from one person to another without a trusted third party.

Technological Advancements

Cryptocurrencies and applications of blockchain technology are still emerging in financial terms, and more uses are expected in the future.

Examples of Cryptocurrency (Int.)

• Bitcoin (BTC),

• Ethereum (ETH),

• Ripple (XRP)

Examples of Cryptocurrency (Local)

• Binance,

• PDAX,

• Crypto.com

Exchange Traded Fund (ETF)

Investment company that sells shares on the stock exchange.

Real Estate Investment Trusts (REITs)

Enable individuals to invest in significant income-generating real estate.