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.
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