Types of Unit Trust Funds

Balanced Funds
Some investors may wish to have an investment in all the major asset classes to reduce the risk of investing in a single asset class. A balanced unit trust fund generally has a portfolio comprising equities, fixed income securities and cash.


Equity Funds
An equity unit trust is the most common type of unit trust where its concentration of investments is focussed in equities or securities of listed companies. Equity unit trust funds are popular in Malaysia as they provide investors with exposure to the companies listed on Bursa Malaysia. The performance of the units is therefore linked to the performance of Bursa Malaysia. A rising market will normally give rise to an increase in the value of the unit and vice-versa. There is a wide array of equity unit trusts available in the market, ranging from funds with higher risk, higher returns to funds with lower risk, lower returns

Exchange Traded Funds (ETF)
ETF is linked unit trust fund whose investment objective is to achieve the same return as a particular market index. ETF often have low expense ratios and can be bought and sold throughout the trading day through a stockbroker, on an exchange

Fixed Income Funds
Fixed income funds invest mainly in Malaysian Government Securities, corporate bonds, and money market instruments. The objective of a fixed income fund is usually to provide regular income.

Index funds
These funds invest in a range of companies that closely match (or “track”) companies comprising a particular index

International equity funds
International equity funds are funds primarily invested in overseas stock markets

Money Market Funds
Money market funds invest in liquid, low risk money market instruments that are in effect short-term deposits (loans) to banks and other-low risk-financial institutions, and in short-term government securities. Hence, money market funds in general have relatively lower risk and provide stable income returns.

Real Estate Investment Trusts (REITS)
REITs invest in real properties, usually prominent commercial properties and provide the investor with an opportunity to participate in the property market in a way which is normally impossible to the small time investor. By investing into REITS, however, it is possible to invest a small amount to gain exposure to the property market and have diversification in your portfolio.

Shariah Funds
The objective of Shariah funds is to invest into Shariah compliant investments which for example exclude companies involved in activities, products or services related to conventional banking, insurance and financial services, gambling, alcoholic beverages and non-halal food products.

Benefits of Unit Trust Funds

The main advantages of investment into a Unit Trust fund is the reduction in investment risk by way of diversification as well as having approved professional investment managers manage the funds.

Unit trust investments generally tend to invest in a range of individual securities. However, if the securities are all in a similar type of asset class or market sector then there is a systematic risk that all the shares could be affected by adverse market changes. To avoid this systematic risk, investment managers may diversify into non-correlated asset classes. For example, investors might hold their assets in equal parts in equities and bonds.

Affordability
As Unit trusts are a collective investment scheme, the investors can start with an investment amount as low as RM1000 for initial payment and as low as RM100 monthly.

Diversification
In addition, since the investors is investing into a diversified portfolio of investments, rather than an investment portfolio of one or two investments or shares, his risk is better spread out in line with the saying "don’t put all your eggs in one basket"

Liquidity

An excellent return or “paper profit” that cannot be "cashed-in" or converted back to cash (i.e. sold) does not necessarily mean a good investment as poor liquidity constitutes an additional risk factor for the investor. Hence, most investors prefer that their investment to be liquid. That is, that the investment can easily be converted back to cash. Unit trusts provide this feature as units can easily be bought or sold. Some funds can even return your investment to cash within the same day.

Professional Fund Management
Unit trusts fund managers are approved professionals in a highly regulated industry. Their license, background and expertise ensure that decision making is structured and according to sound investment principles. In the process, unit trust funds enjoy the depth of knowledge and experience that fund manager can bring. In the long term, it is this expertise that should generate above average investment returns for unit trust investors

Investment Exposure
For an individual investor, it may be difficult to have exposure to particular asset classes. For example, if an investor with RM20,000 wants to be invested into property, global equity and bond market, it would be impossible to simultaneously hold a direct investment portfolio in all of these markets. However, with unit trust investments, it is possible to spread the RM20,000 around to all of these asset classes concurrently so that the investor can gain the investment exposure he seeks.

Reduced Costs & Access to Asset Classes
If one investor were to buy a large number of direct investments, the amount they would be able to invest in each holding is likely to be small. Dealing costs are normally based on the number and size of each transaction, therefore the overall dealing costs would take a large chunk out of the capital (affecting future profits). Pooling money with that of other investors gives the advantage of buying in bulk, making dealing costs an insignificant part of the investment. In addition, since the fund managers invest in larger amounts, they are able to get access to wholesale yields and products, which are impossible for the individual investor to obtain. For example, unlike unit trust funds, most individual investors cannot have direct access to the Malaysian Government Security market because, amongst other reasons, the amount of each transaction could run into millions of Ringgit.

Regulated Industry
With the introduction of unit trusts in Malaysia came regulation from various regulators, especially the Securities Commission. The entire range of variables relating to the unit trust industry is governed by various legislations. The sole purpose of such regulations is to protect the interest of the investing public. Regulations provide investors with a level of comfort that they are investing in a safe investment mechanism.

How to invest in Unit Trust Fund?

There are generally 3 ways to invest in unit trusts funds, namely through Cash, Regular Savings or Investment through your EPF fund.

Cash or Lump Sump Investments
This is where an investor has a lump sum amount to invest into a unit trust fund. Over a period of time, the initial investment will increase as income is earned by the fund. When the investor redeems his or her units, the unit redemption price will reflect the accumulation and compounding of the invested capital over the relevant periods. It is this compounding effect over time which makes investment into unit trust funds attractive.

Regular Savings
An investor may invest in unit trusts funds by making regular (e.g. monthly or quarterly) investments to their fund. This is an ideal, disciplined and useful way to generate capital for a future need. By making equal and regular contributions over a period of time, the sum accumulated at the end of the period will increase. This is commonly known as dollar cost averaging. At the end of the period, the redemption (or sale) price of the units held will represent the accumulation of all contributions, plus returns generated from the total contributions since the first purchase was made. The effect is more noticeable the longer the holding and contribution period. This form of savings is the basis of most pensions fund accumulation e.g. the Employees Provident Fund.

EPF Members Investment Scheme
Investors may also invest into unit trust funds from their EPF Account 1 if he or she is eligible. EPF members can refer to their EPF statement as well as the Basic Savings Table to check their eligibility and quantum of investment allowed