When is the right time to redeem your UITF investment?

April 18, 2012 | By Fitz | Filed in: Investing.

I am new to UITF and am thinking if it would be more profitable to redeem your UITF investment periodically (i.e. anually), deposit the gain in your savings or time deposit account and reinvest the capital back UITF.

Is this a wise approach or would it be better just to leave the money in your UITF investment and only redeem if the need arise?


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2 Responses to “When is the right time to redeem your UITF investment?”

  1. Fitz says:

    Hi Bonzai, it depends on your investment objective. And I suggest that you redeem your UITF when you’ve reached that objective.

    For example, if your investment objective is to be able to buy a new laptop in a couple of years or so, and you have P100,000 capital, then you should invest that money in an equity UITF (because this UITF will most likely meet your objective).

    When the UITF reaches your target price, say P140,000 – then it’s a good time to redeem it because you now have the money to buy the new laptop worth P40,000 (for “free”).

    Let’s say that you don’t have any concrete objective, then I’d suggest that you set a personal target price that’s realistic with the type of UITF you invested in.

    Again, let’s say you have P100,000 capital that you invested in a moderate-risk UITF, then you can perhaps set a target price of 15% gain or P115,000 – which means you would only redeem when the investment reaches that price. Take the gains, and reinvest the capital.

    Redeeming profits based on a time period (annually) is a good idea. It helps you secure the profits and take away the risk of losing it. However, doing this will not maximize your profits, specially if the market is going up.

    Remember that every time you redeem and reinvest your original capital on the same UITF, you’ll be buying less and less units (because the NAV is going higher and higher).

    In summary, if the market is up and you don’t have any use for the money anyway, then don’t redeem your investment. But if the market is volatile with respect to your investment horizon, then it might be a good idea to follow your strategy.

    This question really got me thinking. Thanks for asking this and I’ll surely write a more comprehensive post on my blog about this.

  2. Bonzai says:

    Hi Fitz, thanks for the reply!

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