KUALA LUMPUR: UNIT trust return is closely linked to the stock market performance. Unit trust allows people from all walks of life to invest and build their wealth over a long period of time.
It is convenient to invest in unit trust as investors do not need a huge sum of money to start investing, and the risk of investment ranges from low to medium based on products.
Among low-cost unit trust products include fixed-price products, such as ASB, ASB3, ASW 2020 and ASD, managed by Amanah Saham Nasional Bhd (ASNB).
Besides that, ASNB and other unit trust management companies, like Amanah Mutual Bhd (AMB), offer unit trusts with price fluctuation, in which the net asset value of each unit changes daily. Unit trust with price fluctuations is in the medium risk category.
Based on the definition from the Federation of Investment Managers Malaysia, a unit trust is a collective investment by investors with the same aim towards a fund managed by professional fund managers.
The professional fund managers will then invest the fund in different asset classes, such as stock market and bond, to generate profit. The profit from the investment will be returned to the investors in the form of dividends or income distributions, depending on the period of investment.
It means when an investor invests in a unit trust, it is similar to appointing a professional manager to manage their investment money.
The method of investing in unit trust is more convenient compared with investing in the volatile stock market due to stock price fluctuations and uncertainty index.
Therefore, when investing in unit trust, investors do not have to spend too much time and effort to manage their investment. The risk level is also lower as it is a shared risk product and is being managed by experienced fund managers.
Fund managers will usually impose a small fee for managing the funds, thus, lowering the amount of the capital required for investment compared with those required by individual investors for individual stocks.
However, when it comes to investing in unit trust, investors need to understand that each unit trust has its own category — such as equity fund, fixed income fund, balanced fund, money market fund and real estate investment trust — with each having its own specific investment methods and aims.
For example, ASB falls under the equity fund category and its main objective is to provide long-term investment in the form of income to unit holders.
Besides that, ASB, in its 2015 Annual Report, said more than 72 per cent of investment from the fund was in the form of stock market.
Therefore, the income gained from ASB will be influenced by the economic performance and current stock market on the reporting year.
As an investor, it is common to expect a high return.
However, an investor also needs to understand that all investment in the equity market will be affected by the economic performance and the current stock market.
There is no investment that is free from the factors mentioned. There are also external factors, such as the global, political and economic surrounding, commodity price and others.
When we are investing, we need to find an instrument that can generate an annual stable income that can outgrow inflation and also those that comes with bearable risk.
If investors are looking for a high return of up to 10 per cent, it is more suitable for them to invest in the stock market.
Besides that, they also need to be prepared for the risk of losing the investment capital due to uncertainty in the stock market.
In the long run, unit trust can provide investment opportunities that can help investors to grow their wealth without having to spend too much time managing it.
Unit trust can also provide an opportunity for investors to start investing early as it does not require a huge capital to start with.
Most importantly, investor needs to give a high commitment in growing their wealth, by investing consistently for a long period of time.
With unit trust investment opportunity like ASB that comes at a low cost and with a fixed price, the public can start their financial planning as early as possible.