Advantages of investing in unit trust funds
The cost is shared by all investors in the fund. Affordable: The minimum investment amounts are often more affordable than they would be if you tried to invest in shares or bonds or any other listed security as an individual. Transparency: Funds are obliged to make certain disclosures about, for example, the risks of investing and the fund holdings. This makes the fund transparent, and makes it easier for you to understand your investment. Accessible: Unit trusts are obliged to buy your units back from you when you want to sell.
This makes it possible for you to get your money out quickly if you need to — you do not have to wait for a seller to be found. Many funds are suited for longer-term investing which may make a decision to disinvest a bad one, but if you are in need of the money, you can access it at any time as long as you are not invested in a unit trust fund through another financial product like a retirement fund that has its own rules. Legally protected: Investments in unit trust funds have certain legal safeguards aimed at protecting you against your investment not being well-diversified and against any business risks within the unit trust management company or asset manager.
Read more: Are there any restrictions on your unit trust fund? Flexible: You can invest a lump sum or commit to invest a regular amount each month, but unless you are investing through a long-term insurance product like an endowment or a retirement annuity, you are not bound to contributing for a certain period. This means you can stop and restart your investment whenever you need to — for example, if you lose your job.
Third, the interest is moderate given the low-risk nature of unit trusts. Most of the underlying assets are regulated assets like treasury bonds and bills. You can also benefit from the compounding effect by leaving your funds intact for some time. Also, the interest income earned by unit trusts is currently tax-exempt. Finally, unit trusts are regulated by the CMA. There is also a governance structure around them.
The actual assets are held by a custodian who is usually a bank. There is also a trustee who oversees the whole operation. Plus, you have a professional manager who actually does fund management. Because of this regulation, unit trusts are fairly safe compared to other investments.
From my experience, the best approach to investing in unit trusts has been to first identify my investment goal. For example, it could be saving up for school fees. I then typically automate the saving decision using a monthly standing order. So every month, some money is automatically sent to my unit trust whenever I am paid.
This simple practice has enabled me to accumulate some liquid cash that I can use to meet my everyday needs.
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In fact, new funds are launched almost every month. There are several reasons for the growing popularity. Low Outlay You can get started investing in unit trust with a relatively low amount. When you invest in a unit trust, your money is pooled with money from other investors. This allows investors with small amounts to invest, to have their money managed by the full-time professionals fund managers, who would otherwise be available only to large corporations and wealthy individuals.
Diversification Unit trusts also represent an efficient way to build a diversified portfolio. By investing in a unit trust, you are buying into a diversified portfolio of investments, rather than an investment portfolio consisting of one or two investments or shares.
In contrast to actively-managed funds which continually buy and sell securities, thereby changing their investment mix, the securities held in a UIT generally remain fixed. As a result of this relatively fixed portfolio structure, UITs experience no manager driven style drift or adjustments to the portfolio in response to changes in the markets.
Transparency—Know What You Own UITs are fixed portfolios that allow investors to know what securities are held in the trust from the date of deposit until maturity. Enables investors to make informed decisions that consider their specific risk preferences. May help avoid concentrated positions and portfolio overlap. Helps eliminate emotional investing by helping investors focus on long-term horizons rather than short-term performance.
Fully Invested Portfolio1 UITs typically do not hold cash—virtually every dollar goes to work for the investor. Income Potential Many UITs seek to provide the potential of monthly income either from dividends or fixed-income distributions, if any. Please note that income can never be guaranteed.
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The Unique Benefits Of Unit Trusts
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Affordability and Diversification Because unit trusts are a collective investment, potential investors can begin with relatively low investment amounts. Investments are placed in a diversified investment portfolio rather than a portfolio with one or two shares or investments so their investment risk is more evenly spread out.
Subsequently, most investors prefer that their investments be liquid or have the ability to be easily converted into cash. Unit trusts feature units that can easily be sold and bought; some funds can even turn your investment into cash within that very same day. Professional Management Managers of a unit trust fund are approved professionals in an industry that is highly regulated.
Their expertise, background, and licenses ensure that the decision-making process is structured and rooted in sound investment principles. During the process, most unit trust fund investors enjoy the depth of experience and knowledge that fund managers can bring. In the long run, it is their expertise that will allow you to get the most profits out of your unit trust investment in Malaysia.
Investment Exposure For an individual, it may be difficult to gain exposure in a particular asset class. When you invest in a unit trust, your money is pooled with money from other investors. This allows investors with small amounts to invest, to have their money managed by the full-time professionals fund managers, who would otherwise be available only to large corporations and wealthy individuals.
Diversification Unit trusts also represent an efficient way to build a diversified portfolio. By investing in a unit trust, you are buying into a diversified portfolio of investments, rather than an investment portfolio consisting of one or two investments or shares. In theory, by not putting all your eggs in one basket, your risk is better spread out.
Multitude of Funds to Choose From There are also many different funds from which to choose from, to satisfy your investment objectives. They can be used to buy into domestic stocks, government bonds, and also foreign securities.
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