About Unit Trust

A unit trust fund is a collective investment scheme that pools money from many investors who share the same financial objectives. Unit trusts have grown in acceptance and popularity in recent years.

What is a Unit Trust?

Unit trusts have grown in popularity in recent years. It's not hard to figure out why. Unit trusts are the small investor's answer to achieving wide investment diversification without having to come out with prohibitive sums of money. And the benefits do not end at that.
But first, what is a unit trust? A unit trust fund is an investment scheme that pools money from many investors who share the same financial objectives. In exchange for the money, the fund issues units to the investors who are known as unit holders. Unit holders can sell (known as redeeming) their units back to the fund, or buy (and sell) further units.

Managing the fund - Meantime the fund is managed by a group of professional managers (known as the unit trust company) who will invest the pooled money in a portfolio of securities such as shares, bonds and money market instruments or other authorised securities to achieve the objectives of the fund. Because of the large sums collected, the fund manager is able to diversify among various investments in such range and diversity that the risks of investing are minimised.

Income earned - The total assets of the fund determine the value of the fund and the price paid by unit holders or the amount received when they redeem their units. The unit trust fund earns income from its varied investments in the form of dividends, interest income and capital gains. This income is then distributed to the unit holders in proportion to the units they hold, in the form of dividends or bonus units.

Protection for unit holder - As a unit holder, your protection within a unit trust is ensured in the way unit trusts are structured. Unit trusts are actually trusts. The protection is enshrined within the unit trust deed which spells out the respective duties, responsibilities and expectations of the three parties in the unit trust who are namely:
The unit holders who provide the funds for investing;
The unit trust company providing investment, administrative and marketing services; and
The trustee company which holds the assets of the trust on behalf of the unit holders.
There are three sources of information that you must examine when selecting a fund. These are the fund's prospectus, the trust deed and the financial statements comprising the annual and interim reports which are available for inspection, free of charge, at the premise of the fund manager.

Read the prospectus - The prospectus is a very important document as it sets out the fund's goals, investment strategies and policies and the risk-reward position it takes. It may be hard reading being full of legalese, but you must go through the fine print to ascertain that your goals and expectations match that of the fund. The financial accounts will show if the fund is sticking to its game plan and how well it is performing within the plan. Hence as an investor, you should consider the following factors when selecting a fund:
Investment objective - it must be clearly stated or it gives leeway for the fund manager not to carry out your intentions of choosing the fund.
Investment policies - the types of authorised investment and strategies should match your own convictions.
Size of fund and growth trends.
Any investment restriction, like minimum investment required.
Level of risks with its investments - unit trusts don't completely eliminate risks.
Types and amount of fees - understand them so that you will be left with no surprises.
Historical performance on total returns on an annual basis, NAV (net asset value which is essentially the worth of each unit), expense ratios, and particularly the distribution of income to investors and growth of assets - so that you can gauge how well the fund has performed over time.
Latest investment portfolio - so that you know the percentage of holdings in each kind of asset.
Information on Board of Directors, key management team (especially the fund manager, auditor and trustee.

Types of Unit Trusts
Unit trusts are considered good instruments for medium- to long-term financial plans. However, it is important that you choose the appropriate fund depending on your risk profile and investment objectives. Listed here are the types of unit trusts currently available in the market:
Income funds: Invest in fixed income securities and huge dividend-yielding shares with the view to pay out most of the returns. Suitable for investors seeking income and some level of growth at low risks.
Capital growth funds: Invest primarily in shares with the view to maximise capital growth over the long-term (i.e. through a higher unit price). Appeal to high-risk investors keen on capital accumulation.
Aggressive growth funds: Similar to capital growth funds but with investments in aggressive, fast track shares that promise high returns - with higher risk. Generally suitable for high-risk investors.
Balanced funds: Have three objectives: income, moderate capital appreciation and capital preservation. Invest across a broad spread of asset categories including shares, fixed income securities and cash. Well-diversified and suitable for investors looking for reasonably safe investments where the risks are lower and which produce average returns.
Index funds: Invest in a basket of shares that tracks a selected stock market index. Bond funds: Invest only in fixed income securities such as bonds and short-term money-market instruments. All bond funds are subject to interest rate risk and most to credit or default risk of the issuers.
Money market funds: Invest only in short-term money market instruments such as treasury bills, negotiable certificates of deposit and bankers acceptances, with maturity of less than 90 days. Since the funds invest in money market instruments, the returns, while small, are generally more attractive compared to saving deposits. Good for investors looking for liquidity, and perhaps a temporary place to park their funds before they commit to other funds.
Islamic funds: Managed according to Syariah principles; invest in shares and fixed income securities which excludes non-halal shares and interest-bearing money market instruments.
State funds: Managed by the state development corporations for investors from the respective states.

Weighing the Pros and Cons - Advantages of investing in unit trusts:
Ready affordability - This is an obvious advantage - it doesn't cost much to invest in a trust fund. For an initial investment as low as RM500, an investor can buy into a fund and get:
Instant diversification - Investors in unit trusts can access a broader range of securities than they could when investing on their own. With a given sum of money, the individual investor can only buy a small number of shares and in a few companies. But when he invests that sum of money in a unit trust fund, he achieves immediate diversification - his money is pooled with those of other investors and this resultant bigger pool of money gets spread out over many more companies because of the greater purchasing power.
With diversification comes reduced risks. The loss made by a few counters can be offset by the gain made in the other counters. The investor can further reduce his risk by investing in several funds instead of just one fund.
Liquidity - There is ease in selling and buying the units compared with investing directly in stocks of companies where prices and the opportunities to transact depend on the supply and demand of the shares at that time.
Continuous professional management - Unit trusts are managed by a team of experienced professionals who manage the fund in an informed and organised manner as opposed to the individual investor who may invest in a random fashion. Investment decisions made by fund managers are based on extensive research and their own investment skills, and they continuously monitor the portfolio based on researched information.
Reduced stress - The investor does not have to worry about personally monitoring his various investments - keeping an eye on their performance and deciding when to buy or sell. Instead he has the superior investment skill of professionals to do it for him. Unit holders receive interim reports every six months on the progress of their funds, the investment changes made and dividends paid, as well as the fund manager's opinion on the investment market and economy. They also receive the annual reports.
Access to broader array of financial assets - Unit trust fund managers can trade in investment products that are normally inaccessible to the individual investor, such as government and corporate bonds, which may be restricted to institutional investors. Some of these products are traded in large amounts, which limits the individual investor even when he has the opportunity.

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A Quick Start to Financial Planning

Did you know why a financial plan is so important? Well, if you want the best results out of any achievement - be it going to win a battle or having a Anniversary party, you should have a plan. So it should be with investing your money.It is often said, most people don't plan to fail, they just fail to plan.
Financial planning not only tells us where we stand financially right now, it also works out where we want to be in the future through setting our financial goals, and it enables us to reach our financial goalposts in an efficient financial manner.
This section helps you to put together a financial plan.

Assess Your Financial Situation
Before embarking on any investment plan, you need to assess your financial situation, i.e. take stock of how you are financially, so that you can decide how much you can afford to save and put aside for investments. It could be that right now you just spend on whatever you want and whenever you want, without any idea of how much or how little you end up with at the end of each month.To determine your financial status, you have to:First, compute your net worthYour net worth is your personal equivalent to a company's balance sheet and tells you how healthy you are financially. To calculate your net worth, you need to list down your assets and your liabilities. Then subtract your liabilities from your assets to arrive at your net worth.
Your assets will include items like your cash, bank accounts, possessions, existing investments if any, like shares or unit trusts, and your fixed assets, such as properties.
Your liabilities include any loans that you have taken (car, house or even loans from family and friends), your credit cards and any other debts you might owe.If your arithmetic works out to a negative net worth, then you are insolvent. Forget about investing for the time being and work on how to turn it positive. If your arithmetic gives you a positive net worth, that' s good but unless your net worth is already sufficient for all your future needs, you would want to improve the figure so that you can have more to invest.How can you increase your net worth? One way is to reduce your expenditures. Any excess cash over expenditure can then be allocated among your assets to improve your net worth.

Your assets will include items like your cash, bank accounts, possessions, existing investments if any, like shares or unit trusts, and your fixed assets, such as properties.
Your liabilities include any loans that you have taken (car, house or even loans from family and friends), your credit cards and any other debts you might owe.If your arithmetic works out to a negative net worth, then you are insolvent. Forget about investing for the time being and work on how to turn it positive. If your arithmetic gives you a positive net worth, that' s good but unless your net worth is already sufficient for all your future needs, you would want to improve the figure so that you can have more to invest.How can you increase your net worth? One way is to reduce your expenditures. Any excess cash over expenditure can then be allocated among your assets to improve your net worth. But which expense to cut? To determine this,

Do your cash flow statements next
You have to work out where your income goes to; in other words embark on a cash flow analysis of your earning and spending patterns. First organise all your salary statements, receipts, bills, tax returns and other financial data into a clear record of how much you earn and how much you spend each month of the year.
List down and scrutinise each item of your expenses to see which ones can be trimmed so that at the end, you will have a positive cash flow - that means more money coming in than going out.
Some of the items that go into, and questions you should ask, while doing your cash flow exercise include:

1. On your income: What is your salary? Do you have any other sources of income - from part-time jobs, dividends, rental income, bonuses. If you are doing the analysis for your whole family, you want to include your spouse's incomes too.

2. On the outgoing flows: These cover your household and living expenses like food, clothing, and utility; your car maintenance and petrol; loan repayments for car, credit cards or house mortgages; insurance premiums; education and medical expenses, entertainment and holiday expenditures; income tax payments, etc. etc. You get the idea; the list is a long one.

Here is where you have to decide which expenses are necessities and which are just plain frivolous - and cut the latter out of your spending habit, so that you can save more.

1. Draw up a budget to keep your expenditures in line. The budget will be a check on what you can afford. For instance, you can't afford fine dining in posh restaurants on a weekly basis if what you have is a coffee shop type of a budget; although on a rare occasion like your wedding anniversary, you might want to treat yourself so also budget for the occasional splurges. But keep these to a minimum.

2. If you are drowning under voluminous financial data while trying to get organised, be aware that you can get a helping hand from computer technology. The mainstay to organising your finances in today's world is computer software packages, which are designed to help you control your finances. Most programmes will help you create a budget and track your expenses, even calculate how much you should save for investments and monitor your investments.

A Basic Cashflow

Once you have your finances under control, the next step of financial planning is to:

Set your Financial Goals

A simple way to setting financial goals is to plan ahead for two years, five years, 10 years, 20 years and so on. Next, think of the needs and wants you (and your family) have, and translate them to become a specific goal for each of the time frames.
Your goals could range from the obvious (like a house in five years, or your children's university education in 10 years or a nice nest egg upon your retirement), to things you keep promising yourself but you never did have them (like riding the Oriental Express train on your next holiday abroad). However your goals should be specific, appropriate, worthwhile and not pipe dream fantasies.
Next, compute how much money each goal is going to require. Don't be intimidated by the sum. Unless you have massive sums saved up, most of us are going to have to earn the additional funds to realise our goals - and these funds will be acquired through your investing efforts.
After all, this is what this website is all about - to learn how to invest wisely so that we will earn the returns to realise our goals.

Develop Your Investment Program

Now that you have set your goals and have cleaned up your finances to produce some true surplus money for investing, there's one more thing to do before you take the plunge. Many financial planners advise us to set aside at least three to six months expenses to take care of financial emergencies (like losing your job) or unexpected cash flow problems, before venturing out to invest in anything. A man with a family is sometimes advised to save up to one year's cash reserve.
Once this emergency buffer is in place, you can consider how much of your surplus income to use for investing so as to achieve your financial goals. You could start small and increase the amount once your surplus funds build up, or you could start with a portion of your big savings and increase your funds for investing, once your confidence builds up.

Asset allocation: Divvy up your investment pie

The next question that confronts you is what assets to invest in? Should you buy shares or bonds? How about government securities? Unit trusts? Property? Or be adventurous and dabble in futures?Well, you have to do your homework. First, find out what investment products are available to you, how each works and how risky it is. When you are researching an investment, you are typically researching a company or organisation, because they are the ones issuing the stocks, the securities, the unit trusts, the bonds etc. There are masses of information out there, in the media and online and from the corporations themselves that enable you to take a closer look at them. It is essential that you know their product, performance, market, competition and industry so that you can make a fairly good prediction as to their future prospects.

Why? Because your investments are based on the future.
You should not just invest in one specific asset; to make your investment work, you should choose a combination of asset classes or a selection of specific assets within one asset class (like investing across different sectors if equities are your one asset choice). In other words, diversify. Determining how much of your investments you are putting into each asset class to make up your investment portfolio is called asset allocation.
For you, the overall right asset mix will depend on your goals, the time span to reach those goals, the amount of money you have available to invest and your age.If you have a long-term plan with a goal of seeing your primary school kids to university, you can start with an aggressive approach where you place a higher percentage of your investments in equities. But if your time horizon is shorter, you would want to be moderate and lean towards an even split between equities and the safer bonds. If your investible fund is pretty small, it will dictate that you chose unit trusts. Your age counts too. Generally the older you are, the more conservative you should be in your investments, and your focus should shift to income-producing investment products like bonds.
Underlining all these considerations and which investment approaches you should take is the biggest determinant of them all - risk - and hence your tolerance for risk as an investor is very significant. In fact your investment into the specific assets within each class is driven to a large extent by your ability to stomach risk. So please refer to the section on Risks, Rewards & You to understand this very important investment concept, before you finalise your investment choices.Finally do also ensure that you have sufficient life and health insurance so that your family has a financial safety net, should you become very ill or die and cause your investment plans to be in disarray.

Put your program into action

If you are all set to put your investment choices into action, when is the best time to kick off?
The earlier the better. The whole idea is to start early so that you have more time to make your investment grow. If you are young, you have the head start. If you should be in mid-career, you can still reach your financial goals - it is just going to require more ringgit to get there. Even if you are close to retirement, don't think it is too late. Remember, better late than never!When you start, don't invest blindly. Catching the right train at the right time is most important if you want to arrive at the right destination at the right time. Buy what you know. If you don't understand a particular investment, don't dive into it yet until you have grasped all the concepts. Think and act rationally to buy low (and sell high). Don't let greed overcome your sense of reality, for example, buy shares at too high a price, (or refuse to sell because you want more profit). Avoid acting on rumours. Very often there is market talk about certain share prices on the rise. Everyone then jumps onto the bandwagon "pushing" the shares. The strong buying causes the prices of the shares to rise significantly, allowing the parties that started the rumours to unload their shares at a higher price. Can you guess who is left holding the shares at a high price? Think about it!

More About Financial Planning...

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News: It's Public Mutual PIADF again, fund size increased for 3rd time!

Public Mutual Increases Fund Size for Its Public Islamic Asia Dividend Fund For The 3rd Time

KUALA LUMPUR 24 May 2007 – Public Bank’s wholly-owned subsidiary, Public Mutual announced that it has obtained the approval from the Securities Commission (SC) to increase the fund size of Public Islamic Asia Dividend Fund (PIADF) from 3.375 billion units to 5 billion units.
Chief Executive Officer Lam Kam Yin said, “This is the third time the company has increased the fund size of PIADF after it was launched on 3 April 2007. To date, more than RM887.8 million (or more than 3.55 billion units) worth of units of PIADF were sold. The increase in fund size of PIADF by another 1.625 billion units will allow the company to meet strong market demand”.
PIADF is a moderate-risk Islamic equity income fund that seeks to provide income by investing in a portfolio of stocks in domestic and regional markets that complies with Shariah requirements and which offer or have the potential to offer attractive dividend yields. “Up to 70% of the fund’s net asset value (NAV) can be invested in selected foreign markets which include South Korea, China, Taiwan, Hong Kong, Philippines, Indonesia, Singapore, Thailand, Australia, New Zealand and other approved markets. The equity exposure of PIADF will generally range from 75% to 90% of its NAV,” he continued.
He added that PIADF is suitable for moderate investors with preference for receiving income while capital growth is secondary.
Public Mutual is the largest private unit trust company in Malaysia, and it currently manages 42 funds for more than 1,000,000 accountholders. As at 21 May 2007, the total NAV of the funds managed by the company was RM20.4 billion.

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Unit Trust : Start building up your financial freedom today

About Unit Trust

For those having financial problem here is suggested information to get free from it; investment in Unit Trust. Basically, a unit trust is a financial instrument through which individuals may invest their money. The concept behind unit trust is a low risk investment through collective investing from many investors, individuals and institutions who share the same financial objectives. Unit trusts have grown in acceptance and popularity in recent years.

What are the advantages of Unit Trust that make it popular investment tool?

Investing in a unit trust offers investors numerous advantages, including :
a. Professional management at a low cost
b. Safety through the spreading of risk (diversification)
c. Liquidity
d. Ease of transaction
e. Capital appreciation/income stream
The operation of a unit trust may be best explained by outlining its similarities with the operation of a bank, with which most individuals are familiar.
Many individuals deposit money in the banks, for which they receive interest. These individuals expect complete liquidity where they must be able to withdraw their deposits in cash at any time. The banks employ professional managers to look after the deposits. The deposits are invested. These managers lend the deposits to other individuals requiring funds and a host of other profit generating facilities of the banks.
Similarly, unit trust holders wish to put their money to generate higher returns. The goal of all investments is to make money more productive, either through producing income or growth. Unit trust holders have liquidity because their units can be readily converted into cash at any time. By investing in unit trusts, it allows them to engage professional fund managers at a low cost to the individual investors. These managers diversifies the investible funds in many different securities and other approved channels to spread the risk.
The unit trust is constituted through a document known as a deed which brings together and binds the various parties to the deed :
· The trustee, who holds the assets of the trusts on behalf of the unitholders.
· The manager, who is the promoter of the scheme and provides investment and administrative expertise and markets units to the public
· The unitholders who provide the funds for investment and expect to receive the benefits derived from the investment. The effect of dividing the beneficiaries' interest in the trust into units is that their interest is quantified into discrete portions.
Particular advantages of unit trusts over the pooled investments include :
· The provision of an independent trustee to hold the trust's assets on behalf of unitholders and to watch over their interests on an on-going basis.
· The deed and prospectus are scrutinised by government authorities, prior to an offer of units being made to the general public. The managers and trustee are themselves approved by the regulators.
· A buy back provision or covenant in each deed which requires the manager to redeem an investor's units within specified time limits at a price determined in accordance with the deed.
Provisions in the deed under which the manager and trustee are in a fiduciary position in relation to the trust (i.e. they can only profit in ways laid down under the deed). The investor can determine in advance what costs and charges they will be required to pay to join and stay in the trust.

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