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Introduction to Unit Trusts

A unit trust fund is a collective investment scheme that pools the savings of investors with similar investment objectives in a special trust fund managed by professional fund managers.

The fund will then be invested in a diversified portfolio of equities, fixed income securities and other assets in accordance with the fund's investment objectives and as permitted under the Securities Commission's Guidelines on Unit Trust Funds.

The structure of a unit trust fund is a tripartite relationship between the manager, the trustee and the unitholders. The obligations and rights of each of three parties are specified in the deed, a legal document drawn up by the manager and registered with the Securities Commission. The deed is designed to govern the operations of the trust fund and protect the unitholders' interests.

The manager is responsible for the management and operations of the trust fund whilst the trustee holds all the assets of the fund.

The Benefits Of Investing In Unit Trusts

A unit trust scheme provides unitholders a simple, convenient and less time-consuming method of investing in securities compared to investing directly in the stock market. Moreover, unitholders are able to benefit from the expertise of full-time professional fund managers and accordingly, need not have to worry about what stocks to buy or when to get in and out of the market. By investing in unit trusts, investors have the opportunity to spread their money over a diversified portfolio of assets which otherwise may not be possible on their own.

Why would I want to invest in Unit Trusts?

1.	Professional Investment Services You have full-time professional fund managers to manage your investments for you. Investment decisions are backed by extensive research, market analysis and vigilant monitoring of the economic and market environments. investing on your own, you could spend unlimited time on research that professional management would have a better insight on.

2.	Diversification Opportunities By investing in unit trust funds, you have the opportunity to spread your money over a diversified portfolio of assets which otherwise may not be possible on your own.

3.	Spread of Risks Unit trust funds provide you with an alternative investment option which is usually less risky than investing directly in the stock market because in unit trust, risks are spread over a wide variety of securities in different sectors. Please refer to the following section for more explanation on potential risks.

What kind of risks am I taking?

Any investment carries with it an element of risk. With unit trusts, the potential risks can be analysed as follows:

1.	Market risks The risk that the value of a security, bonds or any other security will be reduced by market activity. The volatility in the market activities can be caused by factors such as inflation, changes in government policies, interest rates and exchange rates. This is a basic risk associated with all securities. Such volatility in the change in market activity will cause the NAV or prices of units to fall as well as rise, and income produced by the fund may also fluctuate. An example of this would be the 1998 Asian financial crisis.

2.	Issuer Risk Any large fluctuations in the prices of fixed income securities of any of the companies that the fund owns may cause the NAV or prices of units to change too. Such fluctuations can be caused by changes in government laws in the industry in which the company belongs, entry of new competitors or changes in business directions / strategies / operations. It must be noted that it is not possible to anticipate such risk all the time.

3.	Interest Rate Risk This risk refers to the effect of interest rate changes on the market value of a bond portfolio. In the event of rising interest rates, prices of fixed income securities will decrease and vice versa thus will have an impact on the NAV or unit prices of the fund. Meanwhile, debt securities with longer maturity and lower coupon rate are more sensitive to interest rate changes. This will be mitigated via the management of the duration structure of the fixed income portfolio. The interest rate risk is a general economic indicator that will have an impact on the management of the fund regardless of whether it is a Syariah-based fund or otherwise. It does not in any way suggest that the fund will invest in fixed income/debt securities, which are not approved by Syariah. All the investments carried out are in accordance with the requirements of Syariah.

4.	Credit Risk/Default Risk This risk refers to the ability of the issuer or counterpart to honour obligations to make timely payments on principal and profit/interest. In the event that the issuer is faced with financial difficulties, their credit worthiness may also decrease. This risk is managed by the internal policy of setting a ceiling or limit to the exposure and also the constant process of credit evaluation to mitigate such risk to an acceptable level

5.	Particular stock risk Any irregular fluctuation of a particular stock may affect the unit price as the price of units may also fluctuate. This impact is however minimised because the fund invests in a wide portfolio of investments, thus spreading the element of risk.

6.	Returns not guaranteed As a result of the above risks, the manager is not able to guarantee the distribution and capital appreciation of the fund.
7.	Country risk As a result of the above risks, the manager is not able to guarantee the distribution and capital appreciation of the fund.

8.	Currrency Risk This risk is associated with investments denominated in foreign currencies. The NAV of a unit trust fund will be lower if the foreign currency in which the securities are denominated moves unfavourably against Ringgit Malaysia.

9.	Loan Financing Risk If you obtain a loan to finance your purchase of units, you need to understand that: borrowing increases the possibility for gains as well as losses; if the value of your investment falls below a certain level, you may be asked by the financial institution to top up the collateral or reduce the outstanding loan amount to the required level;
10.	Non-Compliance Risk This is the risk that the management company may not adhere to the investment mandate of the fund, the deed and prospectus of the fund, the SC Act and Guidelines, the internal policies and the relevant laws. As a result, the fund may not be able to achieve its investment objectives. It is however greatly mitigated by the presence of the trustee and the compliance officer of the management company who oversee the overall compliance matters of the fund.

CHOICES in your hand

Question: Nowdays, good education is the main priority for many parents. Do you have sufficient funds for them?

Fact: A survey says that most EPF funds unable to last more than 3 years upon retirement. What is your opinion?

Question: To maintain the standard of living without utilising your retirement fund has not been easy. With the everage life expectancy of 75, how long do you think your retirement fund will last?

Fact: The low savings return from the bank and the increasing inflation rate for the past few years is not doing any favour for many people who are relying on the annual returns to live on.

When Retirement = RM 0 income & spend spend spend

Question: Everyone would like to enjoy financial independence, how much is your financial independence worth?

Fact: The volatility of stock market and the low intrest rate has been a concern to many investors.

Question: Freedom of choice is everyone's dream, how much do you think you need to gain your financial freedom?

Fact: Family, health and beauty are the main concern for many women. However, it is always not cheap to live a better life.