Wednesday, October 25, 2006

What is unit trust?

A unit trust is an investment scheme that pools money from investors to meet a specify finance objective. The fun manager runs the fund and invests the money from investor to make sure it meets the fund's objective. When we talk about unit trust, it involves 3 parties that you must know. This is how the whole unit trust structure works.

  • Fund Manager to run the trust for profit.
  • Trustees to ensure the fund manager keep to the fund's investment objective.
  • Unit holders to invest like you as an investor.
You are the unit holder, the investor. The fund manager help you to manage while the trustee make sure the manager do a right thing - do not cheat your money.

There are many reasons why unit trust is for you and indeed for most of the people. I’m here to only list down top 2 reasons:
  • Professional Fund Manager. Ok, you have the money. Do you really know which share you should buy? Ok simple question, do you think you can do a better job than those professional full time fund manager who is expert on this area? If the answer is yes, then you can forget about unit trust. I would suggest you to take your money (assuming you have enough money) and invest on your own. If the answer is no, well, you can hire those professional fund manager with a little of money just to help you to invest. Isn't that good?
  • Diversification. Your funds are instantly diversified the moment you invest your money. Your money will be invested in a broad range of shares, bonds, and other securities. The fund manager typically invests in 50 to 100 companies. If you’re investing on you own, do you think you have the enough money to get the same effect of diversification? Opps… I forgot to tell you why we need diversification. The whole point we need diversification is to reduce the risk. Diversification is also the main concept of unit trust – help you to reduce the risk rather than to put all your money into 1 company’s stock.
To make it simple and short, unit trust is a investment scheme that allow you hire someone to invest for you and also allow you use other’s people money to help you diversify your investment. That is all about “Unit Trust”. Just remember this just in case someone asks you.

1 Comment:

what are mutual funds said...

I really liked your post. we really need such information to be shared with investors.

Didn't find what you want? Use Google Search Engine below: