For those clients who do not have the time, resources and aptitude to manage their own portfolios, investing in unit trusts is a viable alternative as their money will be managed by a professional fund manager. This team of experienced professionals conducts research and chooses shares and other instruments that meet the goals established for each portfolio. Once the portfolio is chosen, its holdings are typically constant. Investors also benefit from knowing (more or less) what they are investing in for the duration of their investment. The portfolio securities held by the unit trust are listed in its prospectus.
By pooling their funds with that of other investors in a unit trust fund, clients will get exposure to a broad range of investment vehicles. With one low minimum purchase, investors can own a diversified portfolio of securities, which allows easy access to investments that may need a high initial investment if accessed directly.
Because funds in a unit trust are invested in a wide range of assets, this reduces the overall risk of the portfolio. This means that the poor performance of any one asset in the fund is not likely to have a major adverse impact on the portfolio as a whole.
Convenience and Liquidity
Unit trusts are easy to buy and sell. Debit orders can be increased or decreased without penalty. Investors may redeem their investment as and when they require their monies at the established redemption price. Securities in the unit trust will be sold and cash will be distributed to the client’s nominated account. It is also easy for investors to switch between funds as and when their personal circumstances change. Most importantly, management companies are obliged to repurchase units on demand, making unit trusts highly liquid.
Flexible Investment Options
There are two types of investment options that an investor can choose from.
- Via Lump Sum: There is a minimum lump sum investment in a unit trust and no limit as to how much one can save and invest. It is usually advisable to spread your holdings among different funds, especially if one is to make a very large investment.
- Via a regular Savings Plan (monthly contribution): a regular or monthly contribution plan allows investors to invest a set amount into the unit trust of their choice. This is a convenient way of saving, as monthly additional investments are usually paid through debit orders. The regular savings can enhance the returns from the unit trusts that perform reasonably well over a long period. The advantage of the regular savings plan is that it evens out fluctuations in the unit price i.e. the same investment each month will buy more units when the price is lower and fewer when the prices are high.