Mutual Fund

Many people have asked me regarding unit trust and therefore, I would like to share unit trust in this post. If talking about unit trust, this financial product seems less famous than insurance in Malaysia. However, the comments that people give on unit trust is far better than insurance.

What is unit trust? Unit trust is a financial vehicle which the investors will invest the money into a fund and the fund (pool of money) will be managed by the professional. For example, Mr A, Mr. B and Mr. C invest RM1,000 each into a fund and the fund (RM3000) will be invested by the professional appointed by the unit trust company. The fund will be invested according to the objective of the fund set by the company. For example, the objective of the Public Ittikal Fund is to achieve steady capital growth over the medium to long term period by investing in a portfolio of investments that complies with Shariah Principles. Thus, the fund manager will invest the fund into those companies that can comply to the objectives.

Given detailed description of unit trust, what are the benefits of investing in unit trust? One of the benefits is the fund is managed by the professional. As mentioned in my previous posts, the investors are always advised to do research or their homework before investment. The investors have to study the background and the financial statements of the companies. If you have the time and expertise in doing the research, I would strongly recommend you to invest in stock market rather than unit trust. However, if you are not sure on how to do the research, why not invest in unit trust and let the professional team to invest the fund for you. You will not face any problem also if you are interested in investing in foreign countries. The professional will invest for you and you can just sit back and relax. Besides that, it offers diversification to the investors. Unit trust is a financial product to invest in different companies from different sectors which suits the objective of the fund. For example, Public Islamic Sector Select Fund invests in those Shariah compliant index linked, blue chip and growth stocks. A blue chip stock is the stock of a well-established company which has stable earnings and no extensive liabilities. For example, the blue chip companies in Malaysia are Maybank from Finance sector, Tenaga from Trading/Services Sector, IOI Corporation from Plantation sector. Recently most of the companies in Finance sector suffer huge loss compare to others. Therefore, if you only invest in those companies in Finance sector, I think you will know your fate. The loss will be reduced if you diverse your investment and unit trust offers this benefit.

With only RM1,000, you can start your initial investment with unit trust. After the initial investment, you can just invest RM100 for the same fund. It is only as simple as that. Does it means we can always obtain return from our investment? Actually it depends on the fund performance and the market performance. If both the market and the fund are perform badly, the investor will suffer loss as well. However, if the market and the fund are perform well, then the investor will earn the return. You can always check the annual fund performance. I have seen some fund actually generate return to the investors while some of the funds are causing loss to the investors. However, the risk of investing in unit trust is lower comparing to investing in stock market.

There is risks in doing any type of investment. No doubt there is risk in unit trust investment as well. However, if you judge from the benefits that I have shared, you can see that the risk is minimized. Besides that, if the market performance is bad, most of the investment tools will suffer loss as well. We should not ignore this factor. Thus, make your wise choice in deciding the investment vehicle. :)