Starter Guide to Financial Planning
Unit Trust: The First Investment That A Millennial Should Start With
You are in several months into your job and you are happy with what you are earning. Nonetheless, being in the digital world you know that working alone is not enough.
Thus, you wish to invest but you are spoilt for choices on where you want to invest in. Fret not, this article will tell you why Unit Trust should be the first thing that you start to invest in.
Unit Trust explanation
They are also called Mutual Funds hence let’s get that straight first. To refrain from any confusion.
They are the whole portfolio of investments that consists of stocks, bonds, ETFs and any other type of security. This portfolio is called a fund.
There are several parties in a Unit Trust and it will be explained here.
- Fund Manager/ Fund House
A fund manager manages each fund. It is not just one individual but a group of professionals who run the funds. Allocating investor’s money by following the fund’s objectives.
- Trustee
Normally Custodian Banks take on the role as a Trustee. Making sure that the fund managers are running the fund according to the fund’s investment goals and objectives. That is the role of a trustee.
- Beneficiary/ Investor
Last but not least, it is you, the investor. You are the one that is placing your money in the fund with that intention to grow your money.
In Singapore, they regarded as a Collective Investment Scheme (CIS). As it is not an individual investment, there has to be a trust structure to protect the beneficiaries (investors aka you).
To put it in a nutshell, you (investor) puts your money in a fund, which is managed by a fund manager where they are overlooked by a trustee to make sure that they are doing their job.
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Advantages of Unit Trust
- You can start small
By investing in a Unit Trust, you are able to start with a monthly scheme. You do not need a huge amount of capital to start investing.
Previously, investing was just for the rich. But with the advancement of regulations and technology, it is made possible for a common man to invest as well.
- Lower risk than stocks (Diversification)
By placing your money in several financial instruments, it does lower the risks. The gains of the well-performing instruments are able to offset the losses of the less performing instruments.
If you place all of your money in a single stock, your returns will solely be reliant on the performance of that single stock. It will certainly not be good news if the value of that particular stock is decreasing.
- The convenience
Like mentioned above, it is a good practice for you to diversify your investment portfolio. Nonetheless, it is troublesome for you to personally put your money into bonds, stocks, and even ETFs separately.
Thus, if you want to skip that hassle, Unit Trust is your answer.
Unit Trusts are already made to be well-diversified with those instruments. In spite of that, not all Unit Trusts are made the same. Do read the factsheet and prospectus prior to investing in one.
- Professionally managed
Not everyone has what it takes to manage an investment fund. And it takes great experience, skill, and credibility to manage one. Thus, knowing the fact that a Unit Trust is managed by a team of investment fund managers, you can rest assured that your money is in professional hands.
READ ALSO: Investing Your CPF Monies
Disadvantages
- Not a bank account
Though a Unit Trust is more liquid than the other type of investments, it is not the same as a bank account.
Upon keying in our pin in an ATM, you can receive your money right there and then. However, it takes a slightly longer time for you to receive back your money upon redemption. Nonetheless, it still offers some form of liquidity.
But on the bright side, it refrains you from spending money on unnecessary items as is not as easy to withdraw the money.
- Not a short-term investment
Investing and trading are different. And Unit Trust is not an investment that takes a short amount of time to produce returns.
You have to be invested for several years prior to enjoying any returns on your investment. Therefore, if you are accumulating for your wedding which is happening in the next two years, Unit Trusts might not be the best place to put them.
- Capital not guaranteed
Like many investment instruments, your capital or money is not guaranteed. There is a chance that you will lose your money.
Nonetheless, if you want to earn a return, you do have to take some form of risk as well. With that, you have to be ready in an event where you are in the red in terms of your investment performances in the future.
Diversifying with not much effort
There are only 24 hours in a day and most part of it we use it for sleep and work. The rest of it is used up for your personal wants and needs.
Thus, with that being said, we do not really have the time to manage our investment portfolio.
No doubt with this era of information and technology, everyone is well informed enough on where, how they want to invest. But what Unit Trust does is that they offer the expertise and also the intelligence to manage it for you.
To add on, the fund managers devote their time to manage the funds. Hence, that explains the fees involved.
Let your financial adviser explain
Even after all this explanation, it might still be hard to understand a Unit Trust.
That is why you can ask your financial adviser to help in explaining how to invest in a Unit Trust, and you can go through him/her to invest.
There are online platforms that allow you to invest online on your own. But if this is the first time you are investing, you might need to seek professional advice before you invest.
Do take note, buying an Investment-Linked Policy (ILP) is different from investing in a Unit Trust. You can place your money in a Unit Trust when getting an ILP but you have to factor in the increasing insurance charge as well. That will impact your overall returns.
READ ALSO: Here Is What You Need To Do Before You Start Investing
Start investing now. Alter in the future
Sometimes, if you never try, you will never know. Like if you do not dive into the pool, you will never experience how fun swimming could be.
But if you decide that swimming is not the best past time for you, you can always to change to another activity.
Same with investing, you may want to dive into investing so that you can experience the pros and cons of it.
Start small and it will grow. And if you do not like Unit Trust, for example, you can always change your investment portfolio to something else.
With that being said, hopefully, it does increase your awareness of Unit Trust.
Hope that this article was useful. Do share it with your family and friends. Till next time.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but maybe irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
