Unit trusts- part 2

As spoken on unit trust part 1, the performance of the unit trust depends on the fund manager and the market the funds are invested in. Since the monies we pooled in are controlled and managed by the fund manager, it is essential to research on the manager. Generally, researching the managers has now been a rather difficult exercise due to little advertising and coordinated pool of information. Therefore, one must draw to his or her own conclusion whether the fund managers are capable or not.

With regards to market, it is essential to research on the underlying market that the unit trusts invest in. Unit trusts are often categorised into groups that best reflect what they invest in. Generally, the more "unfashionable" a market has been, the more you should feel comfortable relaxing in it. A fashionable can also mean an unstable market and one will see a lot of sellers as investors try to reduce their overweight position. However, for a unfashionable market, most investors will have a low weightage in it and therefore try to buy in order to restore their weightage.

Buying unit trusts
There are two prices quoted for a unit trust and the higher price is known as the "offer" price. The lower price is called the "bid"price. So when a price is quoted like $1.70-$1.60, one will know that the units were on sale for $1.70 and could be redeemd at $1.60. The difference is known as the "spread", which is usually around 5%.

One must know that there are exceptions to this. For example,Templeton unit trust quote only one price., This actaully means the bid price they are prepared to buy back the units. When you buy, they will deduct from the investment the amount of sale charges and the rest is invested at the net asset value price. The effect on the price you pay is the same, but it saves calculating and publishing two prices.

I think i will take a break for now and look at another kind of financial instrument in my next entry.