6 Important Factors To Consider Before Investing In Unit Trust

6 Important Factors To Consider Before Investing In Unit Trust

If you are a newbie in the world of investment, your first thought would likely be either of the two outcomes – lucrative profit or extreme loss.

While it’s true that all investments come with a risk, there are steps you can take to minimise the chances of loss in your investments.

Your risk appetite will be one of the fundamental factors that decide what type of investor you are or will become. Your risk profile will help you determine the breakdown of assets in your portfolio – also known as asset allocation.

The oldest trick in the book to minimising risk is portfolio diversification. As many investors will tell you, “don’t put all your eggs in one basket”, which means to avoid concentrating your funds into one type of investment and instead, flow your funds into different assets.

However, if you are new, the best way to dip your toe in investment is by investing in unit trusts.

A unit trust is a portfolio of different assets, which include a mix of shares, bonds and real estate among other investments. The portfolio is divided up into “units”, which are then bought by investors. Unit trust funds are professionally managed by fund managers.

But, investing in unit trusts also means your funds are pooled together with other investors who have also bought units. Hence, any gains will be distributed among all the investors according to your investment amount. This is known as income distribution, which can be made up of shares, capital gains, dividends and profit depending on your fund type.

As with all investments, investors are encouraged to do their due diligence to understand the investment product before putting their money into any funds. Here are six things you need to know before investing in a unit trust.

1) Identify the best performing fund

There are numerous unit trusts out there to choose from but evaluating the reputation and credibility of the fund and its issuer is key to choosing the right one for you.

How do you know if a fund is performing well? Here are two factors that indicate a fund’s performance:

  • Rate of returns

The return rate determines your gains and is calculated per annum as a percentage based on the fund’s performance in the market.

Most unit trust companies will post a fact sheet on their website, which details their fund performance to ensure transparency for the investors – with this, you can gauge your chances of a return.

One of the Islamic fund management companies, PMB Investment, offers various unit trust funds with different rate of returns.

Here are some of PMB Investment’s annual rate of returns over a five-year period for their top performing funds. This is based on their fund fact sheet as at April 20, 2018.

Fund
 
 PMB Shariah Aggressive Fund
 PMB Shariah Growth Fund
 PMB Shariah Premier Fund
 PMB Shariah Dividend Fund
Returns
62.25%
47.12%
40.62%
21.23%

From the table above, you can see their funds have a healthy performance. For example, PMB Shariah Aggressive Fund produced a whopping 62.25% returns over a five-year period, which is equivalent to 12.45% yearly!

  • Awards and recognition

The easiest way to gauge the credibility of a fund management company is through the awards and recognitions received by the company. Just like how you would be named “Employee of the Year” for excellent performance at your company, good performing funds will also be awarded.

For example, PMB Investment was named as the Best Malaysia Large-Cap Equity (Shariah) Fund for the PMB Shariah Premier Fund at the 2018 Morningstar Awards. The MorningStar Awards is designed to help investors identify exceptional fund managers.

Furthermore, their other products such as the PMB Shariah Growth fund, PMB Shariah Dividend Fund and PMB Shariah Aggressive Fund have also been previously awarded under The Edge Thomson Reuters Lipper Fund/Global Fund Awards.

2) Understand different types of funds

There are also different types of unit trust funds you can invest in. Not all unit trusts are created equal, each fund is complemented with different assets.

So, it’s best you understand the common types of unit trust funds available and how they complement your financial goals to know which to put your money in.

Here are the common types of unit trusts funds available, and their risk ratings derived from Fundsupermart.com. The risk rating is based on the potential downside, volatility, investment objective and underlying investments.

Fund
Risk rating
 (out of 10)
What
Equity funds
7 - 10
This is a fund made up of stocks listed by companies on the stock
market (Bursa Malaysia). Thus, the performance/price will also depend on the movements of the stock market.
Balanced fund
5 - 6
This is a mix of low-risk and high-risk funds, which include money
market funds, fixed income and equity. This is best for investors who intend to invest in specific sectors or regions.
Bond/ fixed
income
1 - 5
This consist of investments in fixed income securities such as corporate or government bonds. A bond refers to a debt investment where an investor loans money to a company or the government.
Money market
fund
0
This comprises of funds that are invested in domestic cash and cash equivalents. These investments are relatively low risk and highly liquid as the assets can easily be converted to cash. Such investments can include short-term money bonds.

Here are some of PMB Investment’s unit trusts, which fall within some of these categories:

  • PMB Shariah Aggressive Fund/Growth Fund (equity funds)
  • PMB Shariah Tactical Fund (balanced fund)
  • PMB Shariah Cash Management Fund (money market fund)
  • PMB Shariah Dividend Fund (equity fund)

However, investors must understand that the lower the risk, the lower the potentially return, and vice versa.

As a new investor, we recommend starting out with lower risk funds, like the money market fund which will give you more liquid assets. Basically, liquid assets are investments that you can easily converted to cash, such as stocks. However, this doesn’t mean you should avoid high-risk funds completely. You can just ensure the allocation of your assets in your investment portfolio matches your risk appetite.

But before you get swayed by the high return rates of high-risk investments, we suggest you do your homework to really understand the product before you decide to invest.

3) Determine the cost of entry

There will always be a minimum amount of entry when it comes to investing – this is how much you will need to make your first investment with the fund. For beginners, the lower the cost of entry, the better, because you might not want to dump a huge sum of money in your first few attempts at investments.

With PMB Investment, the minimum amount is set at RM100. Although it may be easier to invest a mere RM100 as your initial amount, it is better that you invest at least RM1,000 as your starting amount because this will allow you to yield higher returns and reach your long-term goals faster.

However, once you make your initial investment, you can continue depositing regular amounts from as low as RM50!

Nevertheless, there is no streamlined price when it comes to investing in unit trusts. The buying price of the unit is determined by the Net Asset Value (NAV).

NAV refers to the fund’s asset (market value of all the assets under the unit trust) minus the liabilities. Conversely, a healthy fund will have a growing NAV as the value also will determine your profit (also known as capital appreciation) because this will be the going price for your assets.

Here are the current prices of some PMB Investment funds.

Keep in mind that these prices fluctuate and are updated daily on PMB Investment website.

Unit trust
PMB Shariah Aggressive fund
PMB Shariah Growth Fund
PMB Shariah Premier Fund
PMB Shariah Dividend fund
NAV

(as of May 24, 2018)
RM0.5204
RM1.2860
RM0.3406
RM0.2746

Hence, if you were to make an investment for the PMB Shariah Growth Fund, you would need to purchase about 1,921 units to meet the initial investment of RM1,000.

Also, we recommend checking the history of the fund prices, so you can gauge if it’s the right time to buy – essentially, you should buy when the prices have slightly dipped, so you can gain better returns once the prices pick up again. You check the price history of these PMB Investment funds here.

Additionally, you can also invest in unit trusts through the Employees Provident Fund (EPF) Members Investment Scheme, which allows EPF members to allocate a portion of their fund into approved unit trust funds (which include PMB Investment).

However, effective January 1, 2017, the new quantum set by EPF is that members must have a minimum amount of RM228,000 in their Basic Savings Account 1 by the time they reach the age of 55.

Because of this, EPF has set specific amounts members must keep in their Basic Savings account at a certain age – only the excess amount can be invested in the scheme.

Here is how much you must leave untouched in your Account 1:

Age
Basic savings
(RM)
Age
Basic savings
(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
228,000
Source: EPF


You can transfer 30% from your Basic Savings Account 1 into investments and only make subsequent investments over a three-month interval from the date of the last transfer.

However, the minimum amount of investment is set at RM1,000.

For example, you are 25 and have RM20,000 in your Basic Savings Account 1. Your investment amount would be:

Basic Savings Account 1 (RM20,000) – Basic Savings amount (RM14,000) x 30% = RM1,800.

This means you are eligible as the amount you are allowed is past the minimum amount of RM1,000. So, you have RM1,800 to flow into investments from your Account 1!

For more information on this scheme visit EPF.

4) Calculate the cost of investment

There are always additional costs you will face based on your investment amount. These costs include several different fees you will pay to the unit trust company. After all, they are managing your funds, so naturally, you must pay for that service.

Here are the PMB Investment fees you will have to face when you invest with them:

  • Management fee: This is how much you pay to have your funds professionally managed. PMB Investment’s management fee is calculated daily at between 0.4% and 1.5% of the fund’s NAV, depending on which fund you have invested in.
  • Annual trustee fees: This is the charge for the administration and custodial management of your funds. It is calculated daily and is between 0.04% and 0.1% per annum of the fund’s NAV, depending on the fund type.
  • Switching fee: Unit holders can switch units from one fund to another managed fund, assuming that these units are available for sale. The minimum investment that can be switched in each transaction is RM1,000 and units switched are transacted at the fund’s NAV per unit. The charges to switch range up to RM25 per transaction or up to 6% of the amount switched if you are opting to switch from a money market fund to another.
  • Sales charge: This is the charge imposed when buying a unit trust. For PMB Investment, you will pay an additional 6% when you purchase directly or via their certified consultants, while 3% will be charged if you go through the EPF Member’s Investment Scheme on all approved funds. However, there will be no charge if you repurchase.

5) Find out how to get started

It’s not difficult to sign up and invest in a unit trust fund as they are easily accessible.

Here are several ways you can begin your unit trust investment.

  • Autodebit service: A common way of purchasing unit trusts is through a bank. Just apply for a unit trust with a participating bank and you can arrange a monthly amount to debit from your account and keep your investment consistent. You will need to open an account with the bank of your choice. For PMB Investment, the banks are Maybank Berhad, Bank Simpanan Nasional, RHB Bank Berhad and CIMB Bank Berhad.
  • Direct purchase: Purchase directly from the unit trust offices or through their certified consultants. For PMB Investment, the consultants are authorised Unit Trust Consultants and Institutional Unit Trust Advisers (IUTA), such as Apex Investment Services Berhad, Phillip Mutual Berhad and iFast Capital Sdn Bhd.
  • Salary deduction: You can invest regularly through automatic debits on your salary. PMB Investment salary deductions are made through ANGKASA for government employees.
  • Online: There are some banks that provide online services for unit trusts. PMB Investment allows this through CIMB Clicks, RHB Bank, iFast Capital Sdn Bhd, Phillip Mutual Berhad and Maybank2u.

 6) Ensure peace of mind

To secure your future funds, it’s best you start investing the soonest you can. Unit trusts are the best way to kick off your investments because they are professionally managed – you don’t have to worry about the hassle of keeping up with your investments as a fund manager will keep your investment on track.

These are among the responsibilities of a fund manager:

  • Managing investors’ funds on a day-to-day basis
  • Maintaining proper records of investors’ funds
  • Ensuring the interests of the unit holders are fulfilled and protected
  • Formulate a portfolio strategy to maximise returns
  • Evaluate market trends locally and internationally
  • Review performance and portfolio of assets

Furthermore, you will be provided with statements to ensure you know the prospects of your investments. PMB Investment will distribute annual and interim reports of your investments to keep you in the loop – basically, all you need to do, is put your money into it!

The fund manager will always have the best interest of investors, which means they will work to maximise your returns without you having to do it yourself compared to investing in individual stocks on your own.

However, if you are still struggling to meet the initial investment amount, you can invest with PMB Bijak which allows small investors to invest as little as RM10!

So, start your investment journey today!

Learn more and invest with PMB Investment today!

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