What are Unit Trust Funds?
A Unit Trust Fund pools money from investors and invests it in a portfolio of assets according to the fund’s stated investment objective and investment approach. A unit trust is a fund which adopts a trust structure. The pool is managed by a team of full time professionals and a trustee is appointed to protect the interests of the unit holders.
Types of Unit Trust Funds
In general, funds may be divided into three main categories: shares, bonds, and balanced funds that combine shares and bonds. Aside from shares and bonds, funds can invest in assets or a combination of assets such as:-
- Financial derivatives
- Cash or cash-equivalent products
- Real estate
- Units in other funds
Funds offered to retail investors are not permitted to invest in physical commodities directly. They may however obtain exposure to commodities by using financial derivatives.
Some funds are invested in a single country (e.g. Singapore, Thailand), some in specific regions (e.g. Asia, Europe) and some globally. There are also funds that focus on specific sectors or industries such as technology and healthcare.
Pros of investing in Unit Trust Funds
* Funds provide access to assests or markets which may be difficult to invest in directly. For example, real estate assets, bond issues which have a minimum requirement of S$100,000 or more or global markets.
* There are many fund managers and many funds to choose from. You can select fund(s) that cater to your specific investment objectives and risk tolerance. For instance, if you are looking for capital appreciation and have a tolerance for high risk, there are high growth funds available.
* By investing in a fund you invest in a diverse portfolio of assets. Diversification leads to better spread of risks over the fund’s assets.
* Funds allow investors to use sums as small as S$100 to buy into a diversified portfolio of assets. Buying each asset in the fund individually would cost substantially more.
* Unit trust funds are managed by professionals – fund managers, analysts etc who have access to the latest information on markets and companies and are in a position to make informed investment decisions. This ensures the best possible management of your investment.
* Buying and redeeming units of a fund is very easy. Most funds are actually highly liquid investment avenues and permit daily buying and selling of units.
Cons of investing in Unit Trust Funds
* Your investment in Funds are not guaranteed. Despite professional management and portfolio diversification, funds are not immune to market risks. Depending upon market risk factors you may lose a significant portion or even the entire corpus of your investment.
* Funds charge a variety of fees some of which (like management fees) are payable even if the fund is faring poorly. These fees may reduce the return from your investment.
* As an investor, you have no control over the investment decisions of the fund manager.