1. What are Unit Investment Trust Funds ("UITFs")?
UITFs refer to an open-ended pooled trust funds denominated in pesos or any acceptable currency, which are operated and administered by a trust entity ("TE") and made available by participation. UITFs are generally similar to mutual funds, except that investments in mutual funds involve the purchase of shares in a mutual fund company, whereas investments in UITFs involve the purchase of units of investments in a trust administered by a bank.
UITFs do not include long term funds that are designed as long-term investments (i.e., those with a tenor of at least five years), the interest income from which is currently exempt from income taxes (subject to certain conditions, including where the recipient is an individual citizen (resident or non-resident) or resident alien or non-resident alien engaged in trade or business in the Philippines). (Manual of Regulations for Banks ("MORB"), Section 403; Manual of Regulations for Non-Bank Financial Institutions ("MORNBFI"), Section 403-Q). Note, however, that this exemption will be lifted if the current version of the Passive Income and Financial Intermediary Taxation Act (PIFITA) is enacted into law (which is expected to take place later in 2023).
2. How are UITFs established?
TEs authorized to perform trust functions may create one or more UITFs, subject to prior approval by, or notification to, the Bangko Sentral ng Pilipinas ("BSP").
BSP Circular No. 1152, series of 2022, dated 5 September 2022 ("BSP Circular No. 1152-22") amends the relevant provisions of the MORB and MORNBFI on UITFs, particularly, by adding a prior approvalorprior notificationrequirement for TEs creating a UITF (discussed below).
3. Which UITFs require prior BSP approval?
Under Section 414 of the MORB and Section 414-Q of the MORNBFI, as amended by BSP Circular No. 1152-22, a TE that intends to create a UITF that falls under any of the following categories for the first time shall secure prior approval from the BSP:
- Fixed income fund (a UITF that invests in fixed income instruments and has a weighted average portfolio life of more than one year);
- Multi-asset fund (a UITF that invests in a diversified portfolio of fixed income securities, equities, and other allowable investments for UITFs);
- Equity fund (a UITF that has at least 80% of its net asset value in equities);
- Fund-of-funds (a UITF structure that mandates the fund to invest at least 90% of its assets in more than one collective investment scheme);
- Feeder fund (a UITF structure that mandates the fund to invest at least 90% of its assets in a single collective investment scheme);
- Multi-class fund (a UITF structure which has more than one class of units in the fund and is invested in the same pool of securities and the same portfolio, investment objectives and policies);
- Distributing fund (a UITF that has an income distribution feature whereby the income of the fund is distributed in the form of units called unit income).
4. Which UITFs require prior notification with BSP?
- UITF that falls under the same category as an existing UITF of the TE. Thus, once the TE secures BSP approval, the subsequent creation and offering of UITFs under the same restricted category will only require notification to the BSP.
- Money market fund (a UITF that invests in bank deposits and fixed income securities with remaining terms to maturity of not more than three years and has a weighted average portfolio life of one year or less).
5. What are the qualification requirements for a TE seeking approval to create a UITF?
A TE seeking approval to create a UITF must satisfy existing prudential criteria, implement adequate risk management practices, and demonstrate operational readiness (in terms of personnel, IT systems, policies and procedures, etc.) to manage the UITF it wants to create.
6. When shall the application for approval or the notification be submitted with the BSP?
Applications or notifications must be sent to the BSP within 10 banking days from the approval of the authority to create the UITFs by the TE's board of directors. There are additional requirements for fund-of-funds or feeder fund applications.
A nonrefundable processing fee of PhP25,000 will be charged for each application for UITFs that need prior BSP approval, except for Personal Equity & Retirement Account UITFs.
7. When shall the UITF be launched?
The UITF shall be launched:
- For UITFs requiring prior approval – within one year from the date of the TE's receipt of the letter of approval from the BSP, otherwise the BSP approval shall be automatically revoked;
- For UITFs requiring notification – within one year from receipt by the BSP of the notification letter from the TE, otherwise the notification shall be considered withdrawn.
The TE is required to inform the BSP in writing of the date of the actual launch of a UITF.
8. How are UITFs administered, operated, and accounted for?
The trustee shall have exclusive management and control of each UITF under its administration, and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund. No participant in a UITF shall have or be deemed to have any ownership or interest in any particular account or investment in the UITF but shall have only its proportionate beneficial interest in the fund as a whole.
A UITF shall be operated and accounted for in accordance with the rules provided in Section 414 of the MORB and Section 414-Q of the MORNBFI. Contributions to each fund by clients shall always be through units of participation in the fund and each unit shall have uniform rights and privileges as any other unit. In the case of a multi-class fund, units shall be issued as units in a class of the fund.
Each UITF shall be governed by a written trust agreement drawn by the trustee, which shall be approved by the trustee's board of directors and a copy of which shall be submitted to the BSP and shall contain the minimum elements provided in Section 414 of the MORB and Section 414-Q of the MORNBFI.
9. What other amendments are introduced by BSP Circular No. 1152-22 on the UITF regulations?
BSP Circular No. 1152-22 also includes new rules covering the computation of the Net Asset Value per Unit (NAVPu); distribution of income for distributing funds; the Plan governing UITFs; other notification requirements with the BSP; UITF marketing personnel; UITF participant admission and redemption requirements; minimum disclosure requirements; and the BSP's enforcement rights.
10. What is the transitory provision of BSP Circular No. 1152-22?
BSP Circular No. 1152-22 also includes new rules covering the computation of the Net Asset Value per Unit (NAVPu); distribution of income for distributing funds; the Plan governing UITFs; other notification requirements with the BSP; UITF marketing personnel; UITF participant admission and redemption requirements; minimum disclosure requirements; and the BSP's enforcement rights.
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