Picking the right unit trust fund

Securities Industry Development Centre

”WHICH fund should I choose?” is a common question among unit trust investors. Choosing the right fund has never been easy. But the following six steps could help determine the most appropriate funds for you. 

1. Know why you are investing 

As an investor, you must be clear of your investment objectives. This will help you determine the right fund for you. For example, if you are looking for a source of steady income, you may not want to invest in a unit trust that was set up to achieve capital gains. 

2. Know your risk profile 

In investment, risk means the possibility of experiencing investment losses. As an investor, you must always assess your risk profile and really understand how much risk you can take, that is, how much money you are prepared to lose. Different funds have different degrees of risks and always remember – higher returns means higher risk. The ability to really know and understand your risk profile is crucial. It will keep you focused and can prevent you from being distracted by your agent’s numerous colourful brochures and promises which could mislead you into choosing the wrong fund. 

3. Do your homework 

Once you are certain of your investment objectives and risk profile, it is time to get all the relevant information. Your sources of information could be from the following:  

  • Prospectus This is the most important document for unit trust investors. Sadly, most investors do not bother to read the contents of a prospectus, preferring to rely on the agent to tell them about the fund. But if you want to be a serious investor, it is advisable for you to read it because most of the basic information, such as the fund’s objectives, manager’s qualifications and experience, fees and charges, and other relevant information are in the prospectus. You can get the prospectus from the unit trust management company.  
  • Newspapers and business magazines Newspapers and business magazines are the most accessible source of information for unit trust investors. Usually, newspapers will carry news and data on unit trust funds.  
  • Financial planner If you decide to use their services, ask whether they are independent financial planners or otherwise. A non-independent financial planner may receive commissions for a product they are recommending. As a client, you should be made aware of this fact and you should not be compelled to invest in these products.  

    4. Check the fund manager’s background and experience 

    Since you are parting with your hard-earned money, it is crucial for you to know the fund manager’s background and experience. In addition, check whether the fund manager is licensed by the authorities, by logging onto the Securities Commission’s website at www.sc.com.my

    5. Never rely solely on funds’ past performance 

    You must never look at past performance only as a basis to gauge the future performance of the fund. Remember that past performance does not reflect future returns. In addition, not all funds under the same management companies achieve the same performance.  

    6. Select the funds that matches your investment objectives 

    A suitable fund is the one that not only would give you good returns but must also meet your investment objectives and risk profile. By setting your objectives and understanding your risk profile as well as gathering the relevant information, you should be able to determine the right fund for you.  

    This is just a basic and general guide to choose the right unit trust funds and not an exhaustive one. As a smart investor, you must make all the necessary effort and initiative to ensure that your investment decision is an informed one. Remember, your investment decision is yours to make alone. So choose wisely. 

    The Securities Industry Development Centre (SIDC) was established in July 1994, and is the training and education arm of the Securities Commission (SC). Its mission is to build human capital, guide investors in the capital market and develop investor education programmes to meet the objectives of the Malaysian Capital Market Masterplan and address national development needs. It is recognised as a premier training centre for capital market participants and regional regulators.  

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