A unit trust, or UT, is an unincorporated mutual fund structure that holds assets and allows profits to go straight to their individual unit owners rather than be reinvested back into the fund. This type of investment fund is typically set up under a trust deed and the investor is effectively the beneficiary of the trust.
Unit Trust Benefits
The main advantage of unit trust funds is the reduction in investment risk, which is accomplished through diversification as well as approved investment managers.
While this type of fund tends to invest in a spectrum of individual securities, if the securities fall into a similar type of market sector or asset class, investment managers may diversify assets into non-correlated classes to avoid systematic risk. For example, investors may choose to hold assets in equal parts of bonds and equities.
Affordability and Diversification
Because unit trusts are a collective investment, potential investors can begin with relatively low investment amounts. Investments are placed in a diversified investment portfolio rather than a portfolio with one or two shares or investments so their investment risk is more evenly spread out.
An excellent return that cannot be converted back to cash or “cashed in” (i.e. sold) does not always constitute a good investment, since poor liquidity is considered to be an added risk factor for investors. Subsequently, most investors prefer that their investments be liquid or have the ability to be easily converted into cash. Unit trusts feature units that can easily be sold and bought; some funds can even turn your investment into cash within that very same day.
Managers of a unit trust fund are approved professionals in an industry that is highly regulated. Their expertise, background, and licenses ensure that the decision-making process is structured and rooted in sound investment principles. During the process, most unit trust fund investors enjoy the depth of experience and knowledge that fund managers can bring. In the long run, it is their expertise that will allow you to get the most profits out of your unit trust investment in Malaysia.
For an individual, it may be difficult to gain exposure in a particular asset class. For example, if an investor wanted to invest in the bond market, global equity, and property, it may be difficult to hold direct investment portfolios in all three of these markets. However, investments in unit trusts make it possible to share the money that you have among all of the asset classes concurrently, allowing the investor to gain the exposure that he or she seeks.
With the recent introduction of unit trusts throughout Malaysia comes the regulation of the Securities Commission. The sole purpose of these regulations is providing the investing public with comfort in a safe investment mechanism and keeping their investments secure.