Why should you consider investing in a unit trust?
An independent financial adviser will help you take advantage of investing in a unit trust. It’s an affordable way to enter the financial market.
A unit trust is an investment that gives you affordable and easy access to the financial markets. The money you invest is grouped with money from other investors who are likely to have similar investment objectives. Investment managers pool all the money and purchase underlying investments, divided into equivalent slices called 'units’. The units are then allotted to you based on the amount of money you invested. The unit price depends on the day on which you make the purchase.
Advantages of investing in a unit trust
The advantages of investing in a unit trust compared to other investment vehicles include:
Access to professional investment managers
Exposure to different asset classes
How a unit is priced
A unit within a unit trust can be priced according to an equation: Depending on the unit trust’s mandate, the assets of a unit trust are made up of:
Property that the unit trust owns on behalf of investors.
The value of the assets may be updated daily or weekly, depending on the specific unit trust. The operating expenses, which comprise fund management fees, operating costs (which include trustee and custodian fees, audit fees or their service fee and bank charges), transactional costs for buying and selling shares, and VAT. The operating expenses are subtracted from the assets and the remainder can then be divided by the total number of units that the investors have purchased.
What changes the price of a unit trust?
The value of assets and operating expenses within a unit trust can alter the price. Should the shares inside an equity unit trust perform well, then the value of the group of assets inside the unit trust increases, which increases each unit's value or price. The same movement can be expected if the investment manager lowers a variable of the operating expenses.
It's usually not recommended to take advantage of price movement and try to time the market. The majority of unit trusts aren't designed to be traded regularly. Instead, it’s recommended to let the units accumulate in value over a long-term horizon.
The best way to compare unit trusts
The ideal way to assess a unit trust is to
Identify how the price per unit has grown over time. You can get the same information by looking at the performance over different time periods on the fund factsheets that are easily accessible.
The operating expenses (including fund management fees) should be fair relative to the fund’s performance.
How to monitor a unit trust
Try to avoid watching the unit price frequently; it can be insignificant to a long-term investor. Instead, review your investment performance at set intervals to determine whether it is still meeting your needs.
If all of this information seems daunting, it’s recommended that you speak with an independent financial adviser who can assist in gaining a better understanding of the different funds so you can make an informed decision about which funds suit your financial goals.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes