Introduction To Unit Trust

What Are Unit Trusts

Unit Trusts are a form of collective investment that allows investors with similar investment objectives to pool their funds to be invested in a portfolio of securities or other assets.

 

A professional fund manager then invests the pooled funds in a portfolio which may include the asset classes listed below:

 

  1. Cash
  2. Bonds & Deposits
  3. Shares
  4. Properties
  5. Commodities

Unit holders do not own the securities in the portfolio directly. Ownership of the fund is divided into units of entitlement. As the fund increases or decreases in value, the value of each unit increases or decreases accordingly. The number of units held depends on the unit purchase price at the time of investment and the amount of money invested.

 

The return on investment of unit holders is usually in the form of income distribution and capital appreciation, derived from the pool of assets supporting the unit trust fund. Each unit earns an equal return, determined by the level of distribution and/or capital appreciation in any one period.

 

Unit trust investors are typically those with savings to invest, who neither have the time nor the inclination to hold portfolios of direct investments or shares. Rather, they prefer to invest in a secure, reputable investment vehicle which suits their purposes. Unit trusts allow investors to have easy access to a wide range of investments not normally available to them.

 

As investors seek to maximize returns on their financial resources, unit trusts provide an ideal way for them to gain exposure to investments that, in the long run, should produce returns superior to cash savings and fixed deposit investments.

 

The cost of these potentially higher returns is of course the risk that accompanies the investment. In the short term, the certainty of investment returns of most unit trust products is less than those offered by fixed deposits. However, in the medium to long term (i.e. 3-20 years), unit trust investments generally provide better returns at acceptable levels of risk.

 

 

Getting Started

There are three major ways to start investing in unit trusts:

 

Lump Sum Purchases

This is where an investor with a lump sum of monies invests into unit trusts. This may be the only investment the investor wishes to make. Over a period of time (3-20 years), the initial investment will increase as distribution and other income is earned by the fund. When redemption or sale of the units take place, the unit-selling price will reflect the accumulation and compounding of capital over the relevant periods. It is this compounding effect over time which makes accumulation type investments, such as unit trusts, so attractive to the investor.

 

For example, someone who has recently inherited a sum of money may wish to invest the funds into a unit trust and hold it for an extended period to save for some specific purpose. e.g. children’s education. At the end of the holding period, the proceeds of the sale of the units will be the initial investment plus the returns on that amount, accumulated over the period.

 

Regular Savings

Some people invest in unit trusts by making regular (e.g. monthly) contributions to their fund. This is an ideal, disciplined and useful way to accumulate capital for a future need. By making regular contributions over a period of time, the sum accumulated at the end of the period will increase. This is commonly known as dollar cost averaging.

 

At the end of the period, the redemption (or sale) price of the units held will represent the accumulation of all contributions, plus returns generated from the total contributions since the first purchase was made. The effect is more noticeable the longer the holding and contribution period. This form of savings is the basis of most pension fund accumulation e.g. the Employees Provident Fund.

 

EPF Savings

In addition to investing in unit trust by cash or through a regular savings plan, you can also invest using EPF Members’ Investment Scheme. The EPF will process a request to transfer an amount from a member’s Account 1 to approved unit trusts funds if:

  • The Account 1 balance is not less than the required basic savings, details of which are enclosed in the table 1 as prescribed by the EPF for respective age of the EPF members.

     

     

    Table 1 – Basic Savings Amount in Account 1

    UMUR(TAHUN)
    SIMPANAN ASAS(RM)
    UMUR (TAHUN)
    SIMPANAN ASAS (RM)
    18 1,000 37 60,000
    19 3,000 38 66,000
    20 5,000 39 72,000
    21 6,000 40 78,000
    22 8,000 41 85,000
    23 10,000 42 92,000
    24 12,000 43 100,000
    25 14,000 44 108,000
    26 17,000 45 116,000
    27 20,000 46 125,000
    28 23,000 47 134,000
    29 26,000 48 144,000
    30 29,000 49 154,000
    31 33,000 50 165,000
    32 37,000 51 176,000
    33 41,000 52 188,000
    34 45,000 53 201,000
    35 50,000 54 214,000
    36 55,000 55 228,800
  • The member is less than 55 years old.
  • An account in the approved Unit Trust Scheme has been opened into which the transfer can be processed.
  • No transfer has been made in the previous three (3) months from the EPF Members’ Investment Scheme. Transfer under the EPF Scheme is made at an intervals of three (3) months from the date of the last transfer, subject to the availability of the required balance in Account 1.
  • The amount eligible for transfer is not less than RM1,000
  • The amount to be transferred is not more than 30% of the Account 1 balance remaining after deducting the required amount of basic savings prescribed by the EPF (subject to minimum of RM1,000)