Q: What is a unit trust?
A: A unit trust is an investment which pools together monies received from many investors into one large fund. This fund is then managed by a professional fund management team and invested in a basket of stocks (that is either equities or bonds).
Q: What are the advantages of a unit trust?
A: Firstly, by investing in a basket of stocks instead of concentrating your investments in 1 or 2 stocks, you lower your overall investment risk. Secondly, your investments are managed by professional fund managers whose responsibility is to maximise the returns on your investments. Finally, buying and selling a unit trust is convenient and simple.
Q: How is a unit trust regulated or operated in Singapore?
A: Unit trusts in Singapore are authorised by the Monetary Authority of Singapore (MAS). Unit trust managers are licensed and regulated by the MAS. The investments made by the trust are governed by a Trust Deed detailing the investment and operating parameters. Every unit trust will have an appointed trustee. The Trustee ensures that the fund manager operates within the parameters of the trust deed. A prospectus must also be prepared by the managers and registered with the MAS. It is reviewed and updated every 12 months.
Q: How long should I hold this investment?
A: A unit trust is not a short-term investment. We recommend investors remain invested for at least 3- 5 years to enjoy the full benefit of the managers' expertise and market movements Every investor will have different needs, objectives and time horizons and he or she should consider all these factors when buying unit trust.
Q: What is "Net Asset Value (NAV)"?
A: Net asset value or NAV is a term used to describe the value of an entity's assets less than the value of its liabilities. For a unit trust, the net asset value per share usually represents the fund's market price, subject to a possible sales or redemption.
Q: How is NAV calculated?
A: The NAV is usually calculated daily and shall be ascertained by:
- calculating the Net Asset Value per Unit of the relevant Class as at the Valuation Point in relation to the relevant Dealing Day;
- adding the appropriate Fiscal Charges; and
- determining the resultant total to four decimal places and rounding that figure to the nearest three decimal places (or such other number of decimal places that the Manager may from time to time determine with the approval of the Trustee).
Q: How do I monitor the performance of my unit trust?
A: Prices will be published in the financial section of the local newspapers i.e. Lianhe Zaobao, The Straits Times and The Business Times. The daily prices are also readily available through Teletext. You will also receive a Monthly Fund Factsheet, a Quarterly Statement of Account and annual and semi-annual reports from the manager.
Q: Is a unit trust a liquid asset?
A: Yes. Most unit trusts are open-ended and deal on a daily basis. That means that at any point of time when an investor wishes to redeem his units, the manager will buy back the units from the investor and pay the sale proceeds within a specified time period of receipt and acceptance of the redemption request.
Q: What are the risks involved?
A: The risks associated with investing in a unit trust are largely market-related risks that one has to accept in any form of investment in tradable securities. Volatility of return, currency risk and political risk are major risk factors that one should consider.
Q: Will I lose money in unit trust investment?
A: In the short term, i.e. the months after your purchase of a unit trust, the progress of your investment will depend very much on market conditions. Over the longer term, however, the skill of the manager will determine the performance of your investment. For example, in the first year or so, if markets fall, although your manager will take great care to preserve capital, the value of your holding may fall. Equally, if markets rise then you should expect to see the value of your investment increase.
Q: How do I know which unit trust to invest in?
A: The process of selecting which unit trust to invest in begins with determining one's investment objective and risk tolerance level. Having understood one's risk/ return profile, it is important to match this against the asset class that one wishes to invest in to ensure that there is compatibility. A person who is unable to withstand high volatility, for example, should avoid investing in a volatile sector fund or asset specific funds such as technology or warrant funds despite the attraction of high historical returns. There are various categories of funds, for example, equities versus bonds or global, regional, country, sector or thematic funds. One has to consider the investment objective of the unit trust, the investment philosophy of the manager, whether the fund is managed by a team of professionals or a star fund manager, the historical return of the fund measured against its volatility and whether there is any form of after-sales support.
Q: Are the returns guaranteed?
A: Fund houses typically hold out prospects of 12%-15% returns as a long run target that their funds seek to achieve. These statistics are based on average returns achieved by equity related funds over extended periods of time and over multiple stock market cycles. They typically do not represent any guarantee of performance (unless otherwise stated) and certainly do not intend these statistics to be valid over short or specifically defined time spans.