• What is a Unit Trust?
• What are the advantages of investing in Unit Trusts?
• What are the risks involved in investing in Unit Trusts?
• How are the above-mentioned risks managed?
• How can investors make money from Unit Trusts investment?
• How is investing in Unit Trusts different from depositing money in a bank?
• For what kind of investor is Unit Trusts investment particularly suitable?
• For what kind of investor is Unit Trusts investment generally unsuitable?

  What is a Unit Trust?

A Unit Trust is a collective investment vehicle created under the Trust Deed. The trust pools the money of numerous individuals to create a portfolio of financial securities (the Fund) with a specific investment objective.

  What are the advantages of investing in Unit Trusts?

For individuals who do not have the time and expertise to analyze and invest in stocks, bonds and other financial assets, Unit Trusts offer a viable investment alternative. They can expect the following benefits:

• Unit Trusts provide the benefit of cheap access to expensive stocks.
• Your money is managed by a team of skilled professionals.
• By investing in a basket of assets, across companies, industries and countries, investment risk is greatly reduced.
• Investment in Unit Trusts is relatively liquid, and you can ask the Fund to repurchase your units whenever you want.
• Unit Trusts offer both income, in the form of dividends, and capital growth to the investor.
• All realized dividends and capital gains are tax-free.

  What are the risks involved in investing in Unit Trusts?

When investing in listed equities, the Fund is exposed to market risk, that is, there is a possibility that the price of stocks in which the Fund has invested could decrease, due to general factors.

For investments in debt instruments, the main risks are credit risk and interest rate risk.

Credit risk is mainly the risk that the company in whose bonds the Fund has invested could default on payment of interests and principal.

Interest rate risk arises following an increase in interest rates which causes the price of the bond in which the Fund has invested to decrease.

  How are the above-mentioned risks managed?

Investors should be aware that risk is an inherent part of investing. In fact, investing in Unit Trusts contain the same risks as investing directly on the stock market, the only difference being that due to an active management of the funds and by diversifying the asset mix, the controllable risks are significantly reduced.

  How can investors make money from Unit Trusts investment?

Investors can make money in two ways:

Dividend/Income: This refers to the income paid out from the fund.

Capital gains: This refers to an increase in the value of the portfolio when stocks, bonds and other securities in which the Fund has invested increase in value.

  How is investing in Unit Trusts different from depositing money in a bank?

When you deposit money with the bank, the bank promises to pay you a certain rate of interest over a specified period and upon maturity, the bank returns the principal amount and interest to you.

In a Unit Trust, your money is invested by the fund manager as per the investment strategy. The rate of return is not fixed or known in advance but could be potentially higher than the rate of interest on bank deposits over the medium-to-long term, as it reflects both dividend growth and capital appreciation.

  For what kind of investor is unit trusts investment particularly suitable?

Unit Trusts investments are particularly suitable for:

• Investors wanting capital growth or a combination of income and capital growth provided the investor can tolerate a capital risk and hold their investments for three to five years or more.
• Investors looking for professional management of a portfolio of equities in an economical and conveniently packaged form.
• Small investors seeking cost effective access to overseas stock markets.
• Long-term regular savers looking for return exceeding inflation over time.
• Savers seeking better performance and greater flexibility than through bank deposits.

  For what kind of investor is unit trusts investment generally unsuitable?

Unit Trusts investments are generally unsuitable for:

• Small investors who cannot tolerate a stock market risk.
• Investors with little capital who have an immediate need for a high or guaranteed income.
• Investors who cannot commit money for the medium-to-long term.

  Back to top