Unit Trust / Mutual Fund
What Is A Unit Trust And How Does
It Work?
A unit trust is a professionally
managed investment fund which pools your money with that of many other
investors with similar investment objectives. The aggregate sum is then
used by the  fund
to build a diversified investment portfolio which comprises stocks, bonds
and other assets in accordance with the investment objective of the fund.
The price of a unit reflects its
total Net Asset Value, commonly referred to as NAV (the fund’s assets less
its liabilities, divided by the number of units in issue). Unlike stocks,
whose prices are subject to change at each trade, the fund’s NAV is calculated
only at the close of each day’s trading. Hence the fund’s unit price is
quoted in major newspapers on the following Business Day.
To protect your rights and interests
as investors, an independent Trustee is appointed to ensure compliance
of the Manager with the requirements of the Trust Deed, Securities Commission
Guidelines on Unit Trust Funds and Securities Commission (Unit Trust Scheme)
Regulations 1996. The manager is also required to appoint an approved Company
Auditor (within the meaning of the Companies Act 1965) for the purpose
of conducting annual audits of the Fund’s accounts which must be included
in the fund’s annual report.
What are the Benefits of Investing
in a Unit Trust?
Diversification – the spreading
of risks over a wide variety of securities in different sectors. Normally
to do this, you must have a substantial amount of money to buy a diversity
of stocks. However, unit trust funds facilitate this by providing small
savers with an opportunity to pool their savings to invest in a diversified
portfolio of stocks or you could think of it as "not putting all your eggs
in one basket".
Professional Fund Management
– your ability to employ a team of well-trained, in-house investment professionals
who conduct full-time regular investment research and analysis in managing
the assets of the Fund. With such investment expertise, research facilities
and information network, sound investment decisions may be made.
Liquidity – you can redeem
all or part of your units on any Business Day and the Manager will purchase
them.
Hassle Free – you need not
trouble yourself with complicated decision making and arduous paperwork
involved in investment in the securities market.
Affordability – you only need
a small amount of money to participate in a professionally managed portfolio
of investment and enjoy the same benefits accorded to others when investing
in high priced securities. At the same time, you can also reap better returns
from a portfolio of investment as opposed to the limited number of securities
which one can invest individually.
Comparison of Unit Trusts with
Direct Investments in the Stock Market & Fixed Deposits
Unless a person has a very large
amount of cash for direct investments in individual stocks, he may not
be able to achieve a sufficient level of diversification. Losses in one
or more of his stocks may substantially reduce the value of his portfolio.
Unit trusts, on the other hand, have a diversified portfolio and losses
in some of the stocks held are offset by gains in others. Nevertheless,
a person with an undiversified portfolio may reap great returns if one
or more of his stocks increase in value. Unit trust prices rise more gradually
when some of its stocks' prices increase as the unit prices are based on
the total value of the portfolio.
Fixed deposits are generally safe
and the returns are guaranteed. Nevertheless the returns are generally
lower and may be eroded by inflation. Unit trusts generally aim to achieve
returns that are higher than fixed deposits but such investment carries
the risk that losses may be incurred.
Who Regulates The Unit Trust
Schemes In Malaysia?
The Securities Commission is the
main regulatory body governing the establishment and operations of unit
trusts in Malaysia under the Securities Commission (Unit Trust Scheme)
Regulations 1996. This requires that the Manager and Trustee execute a
Trust Deed, registered with the Securities Commission. You may purchase
a copy of the Trust Deed which is registered with the Securities Commission
for inspection at the Manager’s office.
Managed funds vs. index funds
So, what's
best for you? Historically, most index funds
have beaten the vast majority (often over 75%) of all active funds. The
reason for this is costs. Since fees leave most funds underperforming the
market indices, the key is to find a fund that at least matches the market
and has minimal fees, i.e., go for index funds. |
