Eight Principles of Successful Unit Trust Investing

Unit trust investing is a convenient and sensible way to build one's wealth in the medium and long term. Investment specialists will manage the investments and spread the risks through careful diversification. There are eight principles which are helpful to you in making a wise decision in unit trust investing.

PRINCIPLE 1: KNOW THE BASICS

What Is A Unit Trust And How Does It Work?
A unit trust is a professionally managed investment fund which pools together the money of investors who have similar objectives. The total sum is then invested in a diversified investment portfolio comprising stocks, bonds and other assets in accordance with a fund’s investment objective. The unit price of a fund is its net asset value (NAV), derived from its assets less its liabilities and divided by its total number of units. Unlike stocks, whose prices are changed at each trade, a fund's NAV is based on the closing prices of the stocks in its portfolio on each trading day.
To protect your rights and interests, an independent trustee will ensure that the unit trust fund manager like us complies with the requirements of the deed, Capital Markets And Services Act 2007, the SC Guidelines and the Securities Commission Act 1993. We also appoint an approved company auditor under the Companies Act 1965 to audit a fund's accounts before we publish the fund's annual report.

What Is A Typical Unit Trust Fund Investors' Profile?
A typical unit trust fund investors' profile would be individuals who/corporations that:
•have a similar investment objective as a fund.
•are willing to take some form of risk through participation in the stock market and/or fixed income market.
•want to hold investments that are liquid and easily redeemed.
•want to enjoy a lower transaction cost while investing in the stock market.
•want to have a well diversified investment portfolio which is professionally managed.

What Are The General Benefits Of Investing In A Unit Trust Fund?
•Diversification
For any given amount of investment return, investment risks may be spread over a wide variety of securities in different countries, sectors and securities for a small investment sum. On your own, this will normally require a large amount of effort and capital.

•Professional fundmanagemen
A fund's pooled resources makes it cost-effective to engage a team of qualified and experienced in-house investment professionals such as our fund manager. We conduct full-time regular investment research and analysis and make on-site visits to gain greater insights into the investments that a fund holds. We also invest in research facilities and information resources essential for making sound investment decisions.

•Liquidity
We stand ready to repurchase all or part of your unitholding on any business day.

•Hassle free
It is convenient to buy and sell investment units and you are spared the time, trouble and expense of researching and monitoring investments on your own if you are to invest directly in the stock market.

•Affordability
Only a relatively small amount of money is needed to participate in a professionally managed portfolio of investments. For personal direct investments, you will have to invest considerably more in order to have the same reach in investment opportunities and to benefit from the same level of expertise in portfolio management.


What Are The Risks Of Investing In A Unit Trust Fund?
Credit risk, currency risk, dividend policy risk, market risk and etc etc etc.

How Do Unit Trusts Compare With Direct Investments In The Stock Market And Bank Deposits?
If a person has a very large amount of money to invest directly in individual stocks, he may be able to achieve a sufficient level of diversification. Losses in one or more of his stocks may substantially reduce the value of his portfolio. A unit trust fund, however, has a diversified portfolio and losses in some of the stocks will probably be offset by gains in other stocks. Nevertheless, a person with an undiversified portfolio may reap great returns if one or more of the stocks increase in value. Unit trust prices rise more gradually when some of its stocks rise in price because unit prices are based on the total value of the portfolio. Bank deposits are generally safe with low risk of capital erosion. The returns are however usually lower than investments carrying more risk and may be eroded by inflation more significantly. Unit trusts have historically yielded better returns than bank deposits but such investments carry more risks of loss. The equivalent Islamic instrument for fixed deposits is General Investment Accounts.

Management Expense Ratio (MER)
MER will inform the investor of the total annual expenses incurred by a fund as compared to its average NAV. Management expenses include management fee, trustee fee and expenses incurred for fund administrative services. A low MER indicates the effectiveness of the unit trust manager in managing the expenses of the fund.

MER = Total annual expenses incurred by the Fund x 100
Average net asset value of the Fund

Performance Indicators/Benchmark

Investors measure the performance of their investments in unit trusts by various means, and very often take into account pure price changes (rise or fall in unit prices) or the amount of distributions received from a fund. The appropriate method of calculating performance is by including both. This performance measure is called total returns as it includes all sources of income and gains (or losses). Investors need not compute these calculations themselves as total returns figures are published weekly in leading financial magazines, local daily newspapers and foreign financial publications, or the websites of the financial institutions concerned. For a better picture of a fund's performance, you may look at both short (three to six months) and longer-term (three and five years) performance figures. Performance benchmarks such as Kuala Lumpur Composite Index (KLCI), FTSE Bursa Malaysia EMAS Index and FTSE Bursa Malaysia EMAS Shariah Index are used to measure the relative performance of equity funds. For global investments, benchmarks such as the MSCI All Countries World Index, MSCI Asia Pacific Ex-Japan Index and the Dow Jones Islamic Market World Index are used. The performance benchmarks for bond funds are the fixed deposit rates or General Investment Account (GIA) rates (one year) as quoted by a major Malaysian financial institution. The performance benchmark for balance funds is a combination of the performance benchmark for equity funds (e.g. KLCI) and the benchmark for bond funds (e.g. fixed deposits rates), in a ratio that reflects the funds’ general asset allocation. For example, a balance fund with a 60% equity allocation mandate would be compared against a composite benchmark comprising a hypothetical investment of 60% in KLCI and 40% in 3-month Kuala Lumpur Interbank Offer Rate (KLIBOR) rates. Other fund categories such as equity and income funds may also adopt composite benchmarks to properly reflect their maximum equity asset allocation ratio.

Who Regulates Unit Trust Funds In Malaysia?
The Securities Commission regulates the establishment and operations of unit trusts in Malaysia under the Capital Markets And Services Act 2007, Securities Commission Act 1993, the SC Guidelines and other relevant securities law. This requires, among other things, that the unit trust fund manager and the trustee create a deed and register it with the Securities Commission. A copy of the deed may be inspected at the unit trust fund manager's office.
In addition, the Securities Commission has placed stringent requirements in the appointment of the unit trust manager, the trustee, the unit trust manager's directors, chief executive officer, investment committee and Committee Members/Shariah Advisers. The appointment of all these parties must be approved by the Securities Commission.



PRINCIPLE 2: KNOW YOURSELF

It is conventional wisdom that you should be willing to accept more risk if you are looking for higher return, or be happy with less return at lower risk. There is however some flexibility in planning to meet your needs and preferences. Answers to the following questions can serve as a guide to choosing the most appropriate funds for investment:
•What stage of the life cycle am I at now?
•What are my investment goals?
•What kind of returns am I looking for?
•How much risk am I comfortable with?


PRINCIPLE 3: INVESTMENT STRATEGY
Most unit trusts work best when taken as an investment vehicle for the medium to long term. Funds selected for investments should be appropriate for your investment horizon, financial goals and risk profile. Attention should also be given to hedging against inflation and achieving a good degree of diversification. Circumstances may change and you should review your strategy regularly.


PRINCIPLE 4: START EARLY
The power of compounded returns (returns generating more returns) makes it wise to start saving and investing as early as possible. There may still be the risk of decline in the capital value of investment, but a longer investment horizon will certainly give more room for riding out the bad times or the occasional setbacks.


PRINCIPLE 5: INVEST REGULARLY
Regular investments have benefited in many cases from the principle of Ringgit cost averaging. Instead of trying to time the market, which even the experts have difficulty achieving, invest a fixed amount regularly especially when such surplus has been budgeted from a regular stream of income. This practice of investing regularly has a tendency to average out wild fluctuations in prices to your benefit.


PRINCIPLE 6: INVEST FOR THE MEDIUM TO LONG TERM
Historically, unit trusts have provided better returns in the longer term, but have entailed greater short-term risks than other savings vehicles. Your planning and expectations must accordingly be attuned to a longer investment horizon. Unit trusts offer potentially higher returns over the longer term although they do present wider fluctuations in the short run.


PRINCIPLE 7: DIVERSIFY YOUR PORTFOLIO
Diversification, or spreading your investments among the various fund options can help ride out interim fluctuations. It works because the different asset classes have different fundamental characteristics and can move in different directions. For example, when the economy faces a downturn and interest rates are falling, bonds will usually outperform equities, whereas when the economy is booming, equities will generally outperform bonds. In the long run, diversification increases returns while lowering risks, which is why it is the single most important part of any investment strategy.


PRINCIPLE 8: MAKE ADJUSTMENTS OVER TIME
Review your investments regularly to ensure that they still reflect your financial goals and personal circumstances. For example, at one stage of your life you might be seeking longer-term investment that focuses on building savings and accumulating capital. Later on, you might prefer a lower-risk investment that places more emphasis on income. Whatever the reason, making adjustments over time is essential and needs to be incorporated into your investment strategy. Through regular monitoring you can ensure that your investment portfolio continues to match your financial objectives.