Passive Income Through Unit Trust

I have been investing in unit trust (ut) since 2004. My initial investment was in Public Islamic Equity fund (PIEF). I was skeptical and have a limited knowledge about unit trust then. I invested in it buying the idea of getting a better return than ASB.

But now after 4 years of retaining my initial investment and also few monthly investments, my investment has given me a good 48.81% return or average of 12.2% return pa. (assuming the repurchase/selling price of RM0.3427) I did not do anything on the investment, as i told you before due to my lack of knowledge then, i acted as a passive investor. Some people have gained even more return as they were a bit more ut savvy than me.

I would like to quote a simple example of a ut savvy investor as shared in Personal Money, March 2008.
"To maximise returns from my ut investments, I fully utilised the free switching facility provided by the fund houses. I invested in a local small-cap fund i 2000. It performed well until the outbreak of SARS in November 2002. By then, I had switched to a bond fund to preserve my capital. After six months, I switched back to the small-cap fund. In 2005, I switched to a fund investig in China and subsequently switched to the bond fund last November when the sub-prime crisis was escalating. My total return for this particular investment to date is about 210%." (Chong Yong Kee, Ipoh)

The key here is to know when to switch to where? For this very reason, you need to have a good ut consultant.

Thats why, immediately when i decided to become a ut savvy investor i also decided to become a ut consultant. As a ut consultant, i can leverage my knowledge to help other investors to make their decisions as well.

Im a certified UT consultant attached with Public Mutual Berhad. If you want to learn more about unit trust, fell free to call me at 019-5756400 or email me at huzaifahm@yahoo.com. Im ready to share my knowledge and experience with you. ( i will share the outcome of my another investment later)

Lesson 2 - Your Benefits With Unit Trusts

Professional Investment Management A unit trust combines the capital of many investors to employ experienced management in purchasing securities of many companies. The management of a unit trust provides diversification of investments and supervision which few investors could individually afford. Investment management is a full time job requiring specialised knowledge and training. It involves the study of a variety of factors. Some of the factors which have to be examined are, Comparisons of all industries in the economy Relative studies of companies within a promising industry Personal contact with management of promising corporations Evaluating the effect of international events, both monetary and political Determining the results of government policies on each industry Professional management is also interested in studying less obvious factors such as wage rates, which might affect the economy or the profitability of certain companies or corporations. It requires careful study of individual companies within the industry to determine which of the many companies offer the best prospects for the investors. It requires comparing this company with the best companies in other promising industries. Since all this factors are constantly changing, re-evaluation and study have to be continuous. Diversification Diversification means spreading one's investments among many securities. It is an important method of reducing risk. It decreases the danger of damaging losses, which can occur through having all of one's eggs in one basket. Diversification is difficult and expensive for a small investor because the cost of purchasing numbers of shares in many companies at the same time is disproportionately high. Unit trusts with their resources are able to make widely diversified investments available to even the smallest investor. Diversification involves the ownership of many different securities. All the securities owned by an individual investor or unit trust fund are referred to as an investment portfolio. Liquidity An investor can sell his units, wholly or partially, at the following trading day's unit buying price. Units have a high liquidity, that is, they can be readily converted into cash. It has to be remembered, however, that unit trust’s units will be redeemed at the prevailing buying price on the following day after receipt of the repurchase form. The unit price may be higher or lower than the price at which the investor started the plan. Unit trusts should be regarded as a long term, rather than short term investment. Advantages of Compounding Many unit trust funds provide facilities for investors to reinvest their distributions. For those who opted for distribution reinvestment, the fund will automatically credit the distributions into the account, rather than sending distribution warrants. This process of reinvesting the income from the original investment and also of reinvesting the return on the total accumulating investments is called compounding. As an illustration, if at 25, you invested RM100 at the beginning of every month at an interest growth of 10% per annum until age 65, your investment would have grown to RM638,000 ! The key element to compounding is time. The longer the period of time, the greater the growth. Regularity of Investing Many people do not have substantial sums of cash available to invest, but they can develop an investment account, investing smaller sums regularly in a unit trust. Most unit trust funds have plans available to make it possible for smaller investors to invest relatively small amounts monthly. It is easy and inexpensive for an individual to acquire units through deposits of RM100 or more a month in a unit trust fund. Fund Administration - The Convenient Factor Few people have the experience, time or facility to properly set up an investment programme, much less to supervise it constantly. Unit trust managers have emerged as professional organisation devoted to solving the investment problems of people from all walks of life. Unit trusts relieve their investors of the need to handle their own securities transactions. Investors in unit trust funds are not obliged to concern themselves with matters such as, Obtaining quotations on securities being bought and sold Delivery and payment for the securities involved in each transaction Safekeeping of cash and securities Accounting and bookkeeping procedures, etc Investors of unit trust funds will receive semi annual and annual reports which describe a. The portfolio of the funds b. Investment changes made in the period c. Distributions paid, if any d. Fund manager's opinion on the economic and market outlook

Lesson 1 - Unit Trust In Brief

WHAT IS A UNIT TRUST ? A unit trust is a financial vehicle through which individuals may invest their money. The idea behind unit trust is better investment through collective investing. That is to say pooling the investments of many investors, individuals and institutions. Investing in a unit trust offers investors numerous advantages, including: a. Professional management at a low cost b. Safety through the spreading of risk (diversification) c. Liquidity d. Ease of transaction e. Capital appreciation/income stream The operation of a unit trust may be best explained by outlining its similarities with the operation of a bank, with which most individuals are familiar. Many individuals deposit money in the banks, for which they receive interest. These individuals expect complete liquidity where they must be able to withdraw their deposits in cash at any time. The banks employ professional managers to look after the deposits. The deposits are invested. These managers lend the deposits to other individuals requiring funds and a host of other profit generating facilities of the banks. Similarly, unit trust holders wish to put their money to generate higher returns. The goal of all investments is to make money more productive, either through producing income or growth. Unit trust holders have liquidity because their units can be readily converted into cash at any time. By investing in unit trusts, it allows them to engage professional fund managers at a low cost to the individual investors. These managers diversifies the investible funds in many different securities and other approved channels to spread the risk. The unit trust is constituted through a document known as a deed which brings together and binds the various parties to the deed : · The trustee, who holds the assets of the trusts on behalf of the unitholders. · The manager, who is the promoter of the scheme and provides investment and administrative expertise and markets units to the public · The unitholders who provide the funds for investment and expect to receive the benefits derived from the investment. The effect of dividing the beneficiaries' interest in the trust into units is that their interest is quantified into discrete portions. Particular advantages of unit trusts over the pooled investments include : · The provision of an independent trustee to hold the trust's assets on behalf of unitholders and to watch over their interests on an on-going basis. · The deed and prospectus are scrutinised by government authorities, prior to an offer of units being made to the general public. The managers and trustee are themselves approved by the regulators. · A buy back provision or covenant in each deed which requires the manager to redeem an investor's units within specified time limits at a price determined in accordance with the deed. Provisions in the deed under which the manager and trustee are in a fiduciary position in relation to the trust (i.e. they can only profit in ways laid down under the deed). The investor can determine in advance what costs and charges they will be required to pay to join and stay in the trust. Source : Public Mutual (http://www.publicmutual.com.my/)