The benefits of unit trust are plenty. In this article, we examine how investing in unit trusts can be advantageous to small investors.
Unit trust is an ideal way for small investors to invest for their future. Small investors are people who earn their living engaged in activities not related to the financial arena. They are aware that investing is important for them, but they lack the know-how to make the right decisions. For people who are unable or unwilling to research and analyze investment markets and climates on their own, unit trusts are a good way to invest.
In order to maintain a portfolio of stocks in the share market, a person has to keep himself up-to-date with market information and climate. For many people, this is difficult, time consuming and expensive. By investing through unit trust, they transfer the stress of investing to people who are better equipped to look after their investments. These are the professional fund managers. Investors in unit trust also benefit in other related ways:
Diversification
Most small investors do not have the amount of money to buy a wide range of investments. By investing in unit trust, small investors can own units of a portfolio that comprise many investments. The unit trust investors are protected from volatility through the bigger number and wider range of stocks in the unit trust portfolio.
Quick Access to Their Money
Most people want to invest in instruments that allow them to get their money out quickly. Buying an investment that you cannot easily or quickly sell is not good investment, as it poses a risk should you suddenly be in need of cash. Ideally, the investment can be easily sold and cashed within a short period of time.
Unit trust schemes provide this benefit. Under the Guidelines on Unit Trust Funds, whenever an investor wants to cash his units, the unit trust management company must pay the proceeds of repurchasing the units as soon as possible, at most within 10 days of receiving the order to repurchase.
Professional Management
People who invest in unit trusts get the service of professional fund managers. They are trained in this field. Their expertise ensures that the investment decisions they make is structured and follow investment principals. They are unlikely to make rash decisions, which are more likely to happen with people who invest directly in the stock markets. Unit trust schemes enjoy this depth of knowledge and experience that the professionals bring with them. In the long term, the expertise of the professionals help the investor generate above average investment returns.
Investment Exposure
As a small investor, it is some times difficult to buy shares of a particular company. For example, if you have $1000 to invest, you are unable to buy stocks in a company at $5000 per lot. It is also impossible for you to invest in real estate, international securities and corporate bonds that would cost a few hundred thousand, if not millions. Unit trust schemes make all these possible for you. Rather than having to buy the whole chunk, unit trust schemes allow small investors to a small portion according to the amount he has to invest. You can therefore tailor the amount of your investment according to the amount of money you have at your disposal.
Investment Costs
If you buy shares directly from the stock market, you have to pay transaction costs such as broker commissions. Percentage-wise, this is higher than the amount paid by large institutional investors such as the fund managers of unit trusts. Unit trust fund managers invest large amounts. This allows them to get access to institutional rates of return. As a small investor, you have no access to this if you invest direct.
The above are some of the benefits of Unit Trust, and the reason why it is the ideal for small investors.
The information provided in this article is related to unit trust, also called mutual fund, in Malaysia.
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