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Investing In Unit Trusts
 Unit Trusts are collective investments that allow investors with similar investment objectives to pool their funds to be invested in a portfolio of securities or other assets. As investors seek to maximize returns on their financial resources, unit trusts provide an ideal way for them to gain in the long run, returns superior to cash savings and fixed deposit investments. Unit trusts allow investors to have easy access to a wide range of investment exposure not normally available to them. A professional fund manager is appointed to oversee the performance of the pooled funds in the respective portfolio. Do’s
- Examine the risk profile of the fund before making an investment decision.Identify your investment goals and risk profile and select the types of funds that are suitable for you. Generally the higher the returns the higher the risks will be which is generally referred to the extent to your investment may fluctuate in price or value.
- Note that the price of units can go up and down, income distribution is not guaranteed and you may realize a gain or loss when you sell your units.
- Read the prospectus carefully. Make sure you understand the investment objectives of the fund and the risks associated with it.
- Request for the latest annual or interim unit holders’ report. Read these documents carefully and look out for :-
- Information on the shareholders, board of directors and company management. Access the financial strength, track record, experience of the company and its staff.
- The fund investment portfolio and commentary on its performance.
- Any specific features and constraints which may conflict with your needs and preferences.
- Know all fees and charges that you have to incur on your investments and what those fees and charges are for.
- Request for authorization document or card of the salesperson to confirm that he/she is a bona fide authorized salesperson.
- Keep good records of your investments and check any statements or certificates you receive to make sure they are correct.
- Understand what a hybrid product is and seek clarification from the bank prior to investing.
Example of hybrid products are fixed deposits offering high interest rates provided you invest a similar portion of your funds in unit trust. Normally the banks will provide 1% to 2% of the unit trust investment amount in the form of a gift which can take the form of cash rebate, bonus units or higher fixed deposit rates. If the gift is in the form of higher fixed deposit rates, the rates can appear very high when it is annualized. For example when 1% is annualized it will depict a rate of 12% per annum. If the rebate is 2% of the unit trust amount, then the fixed deposit interest rate will be 24% per annum.
Take note that the unit trust portion is still subject to monetary loss / gain and that there are administrative charges involved in investing in unit trust.
Seek clarification and confirmation when in doubt.
Don’ts
- Don’t invest in unit trusts for quick gains. Unit trust should be rated as a medium to long term investment rather than as speculative instruments.
- Don’t rush into a decision. Unit trusts are not only sold during the initial offer period but throughout the life of the fund, as long as the units in circulation do not exceed the approval limit.
- Don’t use a fund’s track record strictly to invest. Use it only as a guide as the performance of the fund is not guaranteed.
- Don’t rely on oral presentation from a salesperson that is not contained in the prospectus, application form or other official document issued by the management company of the fund.
- Don’t give cash to a salesperson or make out a cheque in his or her name. Payment should only be made to the management company.
- Don’t be pressured to purchase a product that is inconsistent with your investment goals and the risks you can afford to take.
- Don’t rush or be pressured to buy before an impending distribution payment or issuance of bonus units by the fund because unit prices will fall and your investment value remains unchanged.
- Don’t use borrowed funds for your purchases of unit trust without understanding the cost of borrowing.
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