FAQ Unit Trust

1) What is Unit Trust

A collective investment scheme, which pools the savings of investors with similar investment objectives in a special "trust" fund; managed by professional fund managers. The pooled monies in the unit trust fund will then be invested in a diversified portfolio of securities and other assets in accordance with the unit trust fund's investment objectives and as permitted under the Securities Commission's (SC) Guidelines on Unit Trust Funds.

2) Advantages of Unit Trust

• Offer diversification
  Investors can own units of a portfolio that comprise many investments. The unit trust investors are protected from volatility through the bigger number and wider range of stocks in the unit trust portfolio.
  

• High liquidity
  Most people want to invest in instruments that allow them to get their money out quickly. By buying an investment that has low liquidity or cannot be easily sell is not a good investment. Ideally, the investment can be easily sold and cashed within a short period of time.

Unit trust schemes provide this high liquidity benefit. Under the Guidelines on Unit Trust Funds, whenever an investor wants to cash his units, the unit trust management company must pay the proceeds of repurchasing the units as soon as possible, at most within 10 days of receiving the order to repurchase.

• Professional Management
  People who invest in unit trusts get the service of professional fund managers.Unit trust schemes enjoy the depth of knowledge and experience from designated fund managers. Their expertise help investors generate above average investment returns.



• Investment Exposure
  Unit trust schemes provide alternative for small investor to invest in real estate, international securities and corporate bonds using minimal amount of money.As an example, if you have RM1000 to invest, definitely you won't be able to buy one lot of stock of a company that is selling at RM5000 per lot. Rather than having to buy the whole chunk, unit trust schemes allow small investors to a small portion according to the amount he has to invest. You can therefore tailor the amount of your investment according to the amount of money you have at your disposal.



• Low Investment Costs
  If you buy shares directly from the stock market, you have to pay transaction costs such as broker commissions. Percentage-wise, this is higher than the amount paid by large institutional investors such as the fund managers of unit trusts. Unit trust fund managers invest in large amounts. This allows them to get access to institutional rates of return. Small investor have no access to this if you invest in the market directly.
  
  

3) Disadvantages of Unit Trust

• Time Horizon
  Unit trusts are generally medium to long-term investments,which may not suit all investors.



• Volatility
  Prices fluctuate daily according to market movements,may not suit all investors’ needs.
  


• Cost involved
  Because professionals administer unit trusts, there are certain costs involved.