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Introduction
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How do you choose the right unit trust for you?
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7 TIPS ON INVESTING IN UNIT TRUSTS
- Compare returns to its relevant index
- Watch out for high fees
- Don’t time the market
- If you choose to invest in unit trusts, hold for the long term
- There is always a risk of losing money
- Don’t forget to diversify your investments
- Remember, unit trust companies and consultants are there to sell you a product. It’s up to you to do your own research
- Quiz: Unit Trust
Watch out for high fees
- These fees may sound small but they will eat into your returns! You should always know what the ‘expense ratio’ of a unit trust is because it roughly tells you what fees you’ll be paying to invest in the fund you’ve chosen. For unit trusts, expense ratios can range anywhere from 0.3% to over 3%.
- If you are going to invest in unit trusts, you should consider using EPFs i-invest portal where fees are capped. To learn more click here.
Click here to read about the various types of fees
- Upfront Sales Fee: This is a one-off fee you pay when you purchase the units. Part of this may cover the commission of the salesperson who sold you the product. Sales Fees for an equity or mixed fund can range from 3-6% of the capital invested. Sales fees for bonds and money market funds tend to be lower at about 0-2%.
The Sales Fee is deducted from your funds even before the units you receive are calculated. For example, if you invest RM1000 and the Sales Fee is 5.5% (RM55), then only the remaining RM945 is used to purchase units.
- Management fee: This is a fee to cover the cost of running the fund. An example would be 1.25% to 1.8% per annum of the NAV per unit of equity, mixed or balanced fund and 0.75-1% of a fixed income or money market fund. You’ll be charged this fee every single year. Fees for other types of funds are generally lower.
- Transfer and Switching Charges: This can range from 0.25% to 0.75%. In some cases, there may be a fixed payment of RM25-RM50 instead. Be careful of switching if you’re only investing small amounts of capital because RM50 of RM1000 is 5%, which is a huge bite out of your capital. Also be sure to remember that if you are switching from a bond or money market fund to equity or mixed fund, you may even have to pay the upfront sales fee of up to 5.5% instead!
- Exit/Redemption Fees: Some funds may also charge you a fee to redeem/exit your investment, which means you’ll have to pay to take your money out of the fund and close your account.
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