Unit Trusts - part 3

Unit Trusts is also known as Mutual funds in the US. They are essentially the same thing.

The principle is the pooling of money from small-time investors into a huge account managed by a manager for investment into the financial market.

4 main types

1) Insurance- Studies had shown that unit trusts from insurance company tend to underperform those offered by financial institution. However, quite a huge sum is invested here due to the psycho effect from our insurance agents. Reason is because these funds usually had a huge amount of admin fees associated with it.. these fees are deducted from your funds to serve your insurance needs. Less pooled funds means less investments which also means less returns in revenue! Hence, a life policy is better than investment linked funds.

2)Banks- Banks selling there own funds eg. UOB and DBS

3)3rd Party Bank- Bank that does not manage any funds but sell funds from other financial institutions..Standard Chartered bank is the biggest 3rd party bank locally.

4)Internet Fund House- Popular now because of its accessiblity. Less admin charges apply because 3rd party transaction is not involved.

Charges for Unit Trusts
There will usuabble be a sales charge for most funds...If you read the papers, they will always quote 2 figures..You will always be buying the most expensive and selling at the cheaper price..This difference is the sales charge or the spread..Usually quoted at 5%..However with internet Fund House these days, the sales charge will be lower at around 2%.

There are funds that have only one quote price (e.g Franklin Templetion).
To clarify earlier post whereby i mentioned Franklin Templetion funds have only 1 price instead of 2. This is because the sales charges is already deducted from your investment before they allocate the units to you. Other funds will only deduct the sale charges when you want to sell the units in your holding. Hence the need for 2 prices.

Types of Unit Trusts
There are a few categories the funds are invested in. This is also known as market.

1)Asset allocation-Shares/equities or Bonds or Foreign exchange (Money market) etc.

Depending on your risk appetite, choose the type of asset that suits you...Equities is the highest risk type while money markets is a totally different type of risk ...However, with higher interest rates causing bonds to yield fewer returns nowdays, money pumped into shares will be better. Will confirm again...

2)Geographical allocation-This can be single country eg.China, India, etc or regional (eg. Asia, Europe) or global.

3)Sectoral allocation- Refers to the Biz type-Popular sectors include Technology, Healthcare,Finance..

When deciding which fund to invest in...Consider all 3 factors...For example, if you believe in equities, Asia, Tech...Look for a fund invested into this area.

Point to note, the more specific a fund is invested in, the higher risk it is involved... eg. a Global Balanced Fund will spread out your risks..

Sianz, army committments just get more and more with time.