For an individual to maintain his own portfolio of investments, he needs to keep up to date with market information and sentiments. In today’s sophisticated financial markets, this means having to embrace a wide range of information from a plethora of sources. For many individual investors, this is difficult, if not impossible and at times, very frustrating as they attempt to ” keep on top ” of the information pile.
Investing in unit trusts transfers most of the necessary ‘know-how’ of investing to those best equipped to handle it – the professional fund managers.There are a number of other substantial benefits of investing in unit trusts that should be noted.
Benefits Of Unit Trust
How To Choose A Unit Trust Fund?
Which type of funds to choose?
Before you invest, you should know your own risk profile and investment time frame. Do you need this money next year or 10 years down the road? Can you sleep at night if your investment goes down?
Investments in equity funds are long-term in nature; you should give them at least two to three years. They’re not for trading because it wouldn’t work out with the costs involved.
If you are very risk averse or you might need the money in the near term, you should go for a bond fund instead. On the other hand, if you are saving for your children’s education and are comfortable with volatility, go for equity.
History Of Unit Trusts In Malaysia
Malaysia introduced the unit trust concept relatively early compared to its Asian neighbours, when, in 1959, a unit trust was first established by a company called Malayan Unit Trust Ltd.
The unit trust industry in Malaysia has therefore a history of more than four (4) decades. The development of this industry can be presented in chronological order as follows:
Introduction To Unit Trust / Mutual Fund
Unit Trusts / Mutual Funds are a mechanism that pools together individual investors’ money to form a very large investible fund. The advantage is that the fund can then be invested in a more diversified portfolio that is professionally managed by experienced fund managers.
Generally, there are two main types of unit trusts, equity and fixed income, which are further divided into many sub-categories. With equity-related funds, investors have to be aware that they are investing in stocks, which are volatile investments. Fixed income funds are usually invested in bonds and interest-bearing instruments and are generally steadier and offer capital preservation.
The value of a share of the unit trusts, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. Unlike stocks, whose prices are subject to change at each trade, the fund’s NAV is calculated only at the close of each day’s trading. Hence the fund’s unit price is quoted in major newspapers on the following business Day.
The expected return for a bond fund should be two to three percentage points above the fixed deposit rate.
The risks are significantly lower with bond funds when compared with equity funds and you should consider them as an alternative to your fixed deposits.
Malaysians Do Not Have Financial Security
In The Star newspaper yesterday (Sunday May 27, 2007), in the front page and in Focus Pages, reported that most Malaysians do not have financial security. 95% of Malaysians are not prepared for retirement. Despite a growing awareness for the need to prepare for one’s retirement, many do not translate their plans into action.
Those in their 20s think they are too young to think about retirement, while those in their 30s and 40s tend to believe they are doing enough because they have their EPF savings. By the time they are 55, it is just too late.
The sad truth is that at 55, most people cannot retire with financial security.
Based on EPF’s 2005 annual report, about 90% of EPF contributors have less than RM100,000 in their accounts – not enough to see them through 20 years past retirement.
Here are some of the highlights.
Trends
Living Costs and Inflation.
Read more here :-
1) Most Malaysians do not have financial security.
2) Counting on the nest egg.
3) Phased EPF withdrawals a better option.
About Online Trading
The invention of the Internet has brought about many changes in the way that we conduct our lives and our personal business. We can pay our bills online, shop online, bank online, and even date online!
We can even buy and sell stocks online. Traders love having the ability to look at their accounts whenever they want to, and brokers like having the ability to take orders over the Internet, as opposed to the telephone.
Most brokers and brokerage houses now offer online trading to their clients. Another great thing about trading online is that fees and commissions are often lower. While online trading is great, there are some drawbacks.
If you are new to investing, having the ability to actually speak with a broker can be quite beneficial. If you aren’t stock market savvy, online trading may be a dangerous thing for you. If this is the case, make sure that you learn as much as you can about trading stocks before you start trading online.
You should also be aware that you don’t have a computer with Internet access attached to you. You won’t always have the ability to get online to make a trade. You need to be sure that you can call and speak with a broker if this is the case, using the online broker. This is true whether you are an advanced trader or a beginner.
It is also a good idea to go with an online brokerage company that has been around for a while. You won’t find one that has been in business for fifty years of course, but you can find a company that has been in business that long and now offers online trading.
Again, online trading is a beautiful thing – but it isn’t for everyone. Think carefully before you decide to do your trading online, and make sure that you really know what you are doing!
Understanding Bonds
There are certain things you must understand about bonds before you start investing in them. Not understanding these things may cause you to purchase the wrong bonds, at the wrong maturity date.
The three most important things that must be considered when purchasing a bond include the par value, the maturity date, and the coupon rate.
The par value of a bond refers to the amount of money you will receive when the bond reaches its maturity date. In other words, you will receive your initial investment back when the bond reaches maturity.
The maturity date is of course the date that the bond will reach its full value. On this date, you will receive your initial investment, plus the interest that your money has earned.
Corporate and State and Local Government bonds can be ‘called’ before they reach their maturity, at which time the corporation or issuing Government will return your initial investment, along with the interest that it has earned thus far. Federal bonds cannot be ‘called.’
The coupon rate is the interest that you will receive when the bond reaches maturity. This number is written as a percentage, and you must use other information to find out what the interest will be. A bond that has a par value of $2000, with a coupon rate of 5% would earn $100 per year until it reaches maturity.
Because bonds are not issued by banks, many people don’t understand how to go about buying one. There are two ways this can be done.
You can use a broker or brokerage firm to make the purchase for you or you can go directly to the Government. If you use a brokerage, you will more than likely be charged a commission fee. If you want to use a broker, shop around for the lowest commissions!
Purchasing directly through the Government isn’t nearly as hard as it once was. There is a program called Treasury Direct which will allow you to purchase bonds and all of your bonds will be held in one account, that you will have easy access to. This will allow you to avoid using a broker or brokerage firm.
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