How do you choose the right unit trust for you?
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
A unit trust is a collection of many different investments combined together and managed by a fund manager. An example of a unit trust is Amanah Saham Malaysia (ASM) which is managed by Amanah Saham Nasional Berhad (ASNB).
There are four (4) main things you’d want to look out for: the unit trust’s reputation, how much risk you think you can handle, how the unit trust has performed in the past, and the unit trust’s expense ratio.
Don’t just rely on tips from family and friends. Refer to EPF approved unit trusts or check out Morningstar which has its own rating for unit trust funds
Your Risk Preference
The word ‘risk’ simply refers to the chance that your investments will lose value. To get a feel of what your risk tolerance might be, ask yourself how much money you can afford to lose or to tie up in an investment for a significant period of time. The more you can afford to lose, and the longer you can tie down your investment, the higher your risk tolerance. Remember, some unit trusts carry higher risk than others.
The past does not necessarily equal the future, but looking at a unit trust’s past performance will give you an idea of how well your money would be managed if it was invested there.
It’s best to look at the fund’s 3 or 5 year performance.
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%.
These fees may sound small but they will eat into your returns!