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Is Unit Trust Investment Right For You? (Part 1)

8:01 AM  Pisstol Aer   Labels:
Unit Trust is a trust that the fund manager will invest funds from unit holder on behalf. The trust is build up based on deed of trust. It will start with a collection of a pool of fund from unit holders who are having the same investment objective. The fund will be under the name of trustee and managed by professional fund manager.
Fund manager shall in turn report to unit holders from time to time about the investment performance. In a nutshell:

1. You do not need to seek for buyer or seller
Unlike share market which you need to get transaction done only when the price is matched. Unit trust fund manager is always ready to sell you or buy your units anytime you want.

2. It diversify the investment risk through diversification
Diversification means fund manager will decide portfolio structure based on funds’ investment objective and allocate funds, to acquire shares, warrants and bonds from different sector, on behalf of unit holders to reduce investment risk. In other word, at unit holders’ point of view, one unit holding equivalent to proportionate of all counters invested by fund manager. The risk will therefore be diversified through holding of various counters in different sector which may be negatively correlated. This can happen when, for example, share market go down as share investors liquidate its equity investment in order to transfer fund into more safer bond market to minimize the impact unfavorable news to equity market that may lead to higher bond price. As a result, if a fund is holding a structure of 50% equity and 50% bond, the impact of softening equity market will be offset by gain in bond market which may lead to more stable return.

3. Manage by professionals
Your fund is managed by experience professional fund managers who must strictly operate under whatever outlined in the deed of trust. Therefore, unit holders are fully protected.

4. Affordable
Share investment requires minimum lot size to be transacted. Currently, 1 lot size is equivalent to 100 shares in Bursa Malaysia. In other words, you need to have a minimum amount of fund that equal to the value of 1 lot size to complete the transaction. For example, say a share of BAT is at $40. With minimum 1 lot size, you need to forge out $4,000 to acquire 100 shares of BAT.

On the other hand, the capital requirement for unit trusts rather minima. Most unit trust funds require $1,000 initial investment and $100 for subsequent investments. Some funds even have initial investment as low as $100. This definitely becomes the most direct alternative to share investment should you have limited capital fund.

In Part 2, I will share on how to select the right fund should you decide to invest in Unit Trust.
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Is Unit Trust Investment Right For You? (Part 1)
Is Unit Trust Investment Right For You? (Part 1)
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