Basic Understanding of a Unit Trust
What is a Unit Trust?
A unit trust, also known as collective investment scheme, refers to a pool of money from many investors managed collectively by a fund manager.
| Advantages of Investing in Unit Trust: |
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| True Diversification - “Don’t put all your eggs in one basket”. In unit trusts, diversification helps in the “spreading of risk” which essentially reduces volatility of returns. | ||
| Professional Management - You have full-time professional Fund Managers, equipped with the ample resources and pertinent expertise to help manage your investment for you. | ||
| Liquidity - You have the option and flexibility to convert your investment into cash quickly or whenever the need arises, normally from 4-7 days upon request. | ||
| Invest conveniently - Free yourself from the unnecessary stress and paperwork that comes with managing your own investment portfolio. | ||
| Affordability - You can make your initial investment from as little as S$1000-S$5000. | ||
u could possibly present the disadvantages of investing in a unit trust too, such as high management fees and so on. Besides, most people would want to know how to choose the correct fund manager or unit trust. So, do u have any checklist or benchmark to identify the good ones from the ordinary ones?
Hi Lun,
Thank you for your comment.
Firstly, there are no funds that are “good” nor “bad”. Different funds exist in the market to cater for different needs. Someone’s good may be another person’s bad.
Before a client is recommended on the funds that he should be investing, proper risk profiling must be conducted by a licensed wealth management advisor to understand the specific financial goals and situation a client might has. Different age groups with different lifestyle or life concerns will also have different risk profiles and financial needs.
The right way to recommend the funds to the client would therefore be a matching of the product to his needs and not the other way round.
On the matter of fund management charges, some of the fund houses offer very competitive fees. An investor’s concern should be the ability of the investment manager to add value relative to the benchmark by generating positive returns over the period. This is analogous to setting up a business. There can’t be profits coming in without incurring initial setup costs. A management fee of 1-2% is justified with a potential annual Return on Investment of 10-30% for instance.
Moreover, unit trusts, being professionally managed and requires low initial outlay, has the advantage of being very affordable to the general public who might not have a large sum of money on hand or knowledge expertise to manage their finances soundly.
I hope you have found this reply useful.
regards,
Ng Zhi Wei