Well like all investment its a maybe. In theory, unit trust is suppose to be relatively low risk compared to property or even share market, but that might not be so. 

It really depends on the fund you are investing your money in. I have invested in 2 mutual fund, 1 has been loosing money since the beginning ( 7 years – thank god I only invested RM5k👏) and another one seems to be hovering around the original investment amount after 3 years. 

There are few things you should know/ask before you invest into the unit trust:

Know the fund you are investing in!

Do some due diligent and search on the particular fund, look at the history of the fund and its current performance. 

Try to find out what they are investing in and how aggressive the portfolio is. 

One way to gauge this is by comparing the FVF and PTR 

FVF – Fund Volatility Factor

FVF measures how volatile the fund is in an increment of 3 years. For instance, if you opened a fixed deposit account and received annual interests of 3%, 3%, and 3% over the last 3 years, then, the FVF is 0%. This means, the returns are not volatile.

If you find a fund where the FVF is 10%, this means, the returns may deviate by +/- 10%. If the fund’s average returns is 8%, future returns could fluctuate between -2% to 18%. Thus, high FVF funds have greater uncertainties of future returns than low FVF funds as they are more volatile. 

Comment: A FVF closer to 0 is ideal as you expect the returns to be quite consistent and safe while a high FVF might give you a higher return over a period of 10 years but the risk is higher and if the fund is not managed well, its very likely for your returns will be negative. 

PTR – Portfolio Turnover Ratio

PTR is a simple way to tell us whether a fund is an investment fund or a trading fund.

For instance, let’s use a IGB Reit as an example. It is a Reit that derives rental income from Midvalley Megamall and the Gardens Mall. Since its inception, it never bought or sold any investment properties. As such, IGB Reit’s PTR is zero as there is no change in the composition of its investment portfolio.

If you find a fund where the PTR is high, this means, the fund manager has been active in buying and selling investment securities. If a fund’s PTR is consistently high, this means, it is a fund that is active in trading and have lesser tendency of holding onto an investment. In most cases, you may find high PTR funds in most equity or aggressive funds.

Comment: Its recommended to invest in a fund with higher PTR on the basis that the fund managers are consistently changing their portfolio to meet current economic situation. 

Agent & Fees

Understanding the amount of commission that you will be paying from your investment is vital. Using EPF to invest, the maximum commission is 1.5% while using cash the maximum commission is at 5.5%. Remember that you will need to overcome this amount before actually making any profit. Even through the fund might lose money, there will still be deduction for annual management fee and Annual Trustee Fee which usually comes up to be about 1.5 – 2 % a year. If the fund is performing badly, slowly but surely with all the fee deductions, you are gonna be losing a substantial amount. 

I invested in unit trust as a way to suppose my friends when I was young. This is totally fine as long you know how dedicated and serious he is in choosing a good fund. Always remember that a agents job scope is to get funds from you. It doesn’t matter if the fund does well or not as he will still earn his sales charge and other recurring fee. 

Comment: My advice is to choose an agent that is fully committed, full time, honest and will work towards making sure the fund chosen will be the best for your risk appetite. 

Looking at what we have discussed, it might not seem like a good idea to invest in mutual fund. But wait!

It all really depends if you are able to find a good agent, active fund manager and a good stock portfolio in the fund. It might be a better bet than playing the stock market your self. 

If you have any questions, please DM us at 👉 https://www.instagram.com/dueetmy/ or https://www.facebook.com/dueetmy/