For an individual to maintain his own portfolio of investments, he needs to keep up to date with market information and sentiments. In today’s sophisticated financial markets, this means having to embrace a wide range of information from a plethora of sources. For many individual investors, this is difficult, if not impossible and at times, very frustrating as they attempt to ” keep on top ” of the information pile.
Investing in unit trusts transfers most of the necessary ‘know-how’ of investing to those best equipped to handle it – the professional fund managers.There are a number of other substantial benefits of investing in unit trusts that should be noted.
Unit trusts are very affordable. Investors can start with an investment amount as low as RM100.
Rather than concentrating an investment portfolio of one or two investments or shares, a portfolio of market securities can be held. The wider the spread of investments, the less volatile (i.e. variable) the investment returns will be. In simple terms, investment into unit trusts means diversification of risk: “not putting all your eggs in one basket.
Most investors prefer their investment to be liquid. That is, they can easily buy and sell without difficulties. Unit trusts provide this benefit, easily bought and sold. An excellent return that cannot be “cashed-in” (i.e. sold) does not necessarily mean a good investment as poor liquidity constitutes an additional risk factor for the investor.
Professional Fund Management
The people entrusted to manage unit trusts are approved professionals. Their training and background ensures that decision making is structured and according to sound investment principles. In the process, unit trust funds enjoy the depth of knowledge and experience that fund manager can bring. In the long term, it is this expertise that should generate above average investment returns for unit trust investors.
For the individual investor, it is sometimes difficult to gain exposure to a particular asset class. For instance, if an investor with RM5,000 wants to gain exposure to the Malaysian property market, global equity markets and the Malaysian bond market, it would be impossible to simultaneously hold a direct investment portfolio in all of these markets. With unit trust investments, it is possible to spread your money around to all of these asset classes at the same time, so that the investor can gain the investment exposure he requires.
Wholesale Investment Costs & Access to Other Asset Classes
When making direct investments in Bursa Malaysia, the investor faces costs and charges that are much higher. With unit trusts the economics of the transaction are more favorable i.e. the fees and charges/brokerage etc. per investment ringgit are likely to be less. As the fund managers invest in larger amounts, they are able to get access to wholesale yields and products which are impossible for the individual investor to obtain. For instance, unlike unit trust funds, most individual investors cannot have direct access to the Malaysian Government Security market because, amongst other reasons, the amount of each transaction could run into millions of Ringgit.
The Comfort of Regulation
With the introduction of unit trusts in Malaysia came regulation from various regulators, especially the Securities Commission. The entire range of variables relating to the unit trust industry is governed by various legislations.The sole purpose of such regulations is to protect the interest of the investing public.
Regulations provide investors with a level of comfort that they are investing in a safe investment mechanism.
Credit: FIMM Malaysia