Essential Facts About Unit Trusts You Should Know About

by | Sep 29, 2018 | Portfolio Investment

A Unit Trust (UT) investment pools funds from investors. A fund manager manages and invests the funds. The UT portfolio is generally a combination of shares, bonds, commodities, cash & properties. The UT is set up as a trust deed (the investor is a beneficiary of the trust).

The types of UT in the market

  • Equity Funds
    Focuses on equities (shares) of listed companies.
    May be classified as high/medium/low risk.
    May invest locally (Malaysia) and/or internationally

 

  • Balanced Funds
    Invests in a diversified portfolio which generally consists of equities, fixed income securities and cash.

 

  • Fixed Income Funds
    Invests in government securities, corporate bonds and money market instruments.
    Its’ objective is usually to provide regular income.

 

  • Shariah Funds
    Invests in Shariah compliant investments.
    Excludes investments related to non-Islamic banking, insurance, gambling, alcoholic beverages and non-halal food product companies.

 

  • Index Funds
    Invests in a similar portfolio to a stock exchange. (i.e. the S&P500 or KLSE Bursa)
    Costs are typically lower for index funds.

 

  • Private Retirement Schemes
    Long term unit trust investment for retirement purposes.

 

  • Exchange Traded Funds (ETF)
    More on ETFs

 

  • Real Estate Investment Trusts (REITs)
    More on REITs

 

Pros

  1. Less monitoring required
  2. Use the expertise of a fund manager
  3. Low investment amount (as low as RM100)
  4. Some unit trusts allow you to transfer money from your EPF Account 1

 

Cons

(depends on type of unit trust and fund manager)

  1. Often have high sales charges (up to 5-6%) & annual management fees (1%+)
  2. Drops faster when the market drops & recovers slower when the market recovers (compared to shares)

You should invest in UT if…

  1. You do not want to invest in shares directly or through ETFs
  2. You want to withdraw as much as possible from EPF and you expect a return of +6% from your UT investment
  3. You want to invest for PRS tax relief
  4. You want to invest for PRS youth incentive
  5. You want to practice dollar cost averaging method to invest
    (make sure you monitor and  rebalance your funds with switching when necessary).
  6. You are willing to do your research before you start
  7. You are willing to review your UT investments annually