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.