Unit trust funds get off to a dazzling start

UNIT trust funds entered 2007 at breakneck speed, with seven new funds emerging in the first 24 days and all snapped up as quickly as they were launched.

From the seven, five unit trust funds, including one from an insurance outfit, offered a combined 5.6 billion units valued at RM1.8 billion to retail investors.

The surge in new funds has a lot to do with the Government’s decision to relax rules in April 2005, alllowing unit trust funds to be invested overseas.

Since then, 56 offshore funds have been launched up to January 24 this year enmassing a fund size of RM11.55 billion.

Last year itself, 16 unit trust funds looked beyond Malaysia’s shores to tap the overseas markets.

Today, local investors have a wide range of funds with equally diverse risk profiles to choose from; and with the relaxed rules, their options are now widened to include funds that cut across continents and sectors previously forbidden.

Taking the cue from the strong performance of the local and regional bourses, fund managers dazzle investors, many of whom are in retirement or planning for their golden age, with new “innovative” products that offer value for money.

With access to global investment management experts, offshore investment allows an investor a greater chance to diversify any investment made across many different markets and currencies.

Demand was met with supply which was abundant in the market that grew by RM20 billion, or 20.4 per cent, as at November 2006.

In that same period, the fund industry flourished to RM118 billion, easily surpassing the RM98 billion it recorded in 2005, the Federation of Malaysian Unit Trust Managers (FMUTM) said.

Yet, with a net asset value that is expected to grow by more than 10 per cent this year and more than 400 funds flooding the local market, the industry fund size still lags behind matured markets.

Despite having a smaller population than Malaysia, Australia’s 20 million citizens’ fund size is a whopping RM2.7 trillion.

The numbers alone make unit trust companies sit up, lick their lips and pledge to spread the good word in the hope that the public will part with their savings to invest in this sector.

“The demand is definitely increasing and the potential for the unit trust industry to grow is phenomenal,” said MAAKL Mutual Bhd chief executive officer and executive director Wong Boon Choy.

Although unit trusts offer potentially superior returns relative to fixed deposits over the longer term, they are still inferior to traditional savings instruments.

Wong said that in Malaysia, for every RM4.5 placed in fixed deposits only RM1 is invested in unit trusts. In the US, the ratio is 1:1.

Liquidity is not short: Bank Negara Malaysia has pointed out that individual fixed deposits in the country totalled RM212 billion as at November last year.

In addition, there is a potential source of RM56 billion from the Employees Provident Fund (CPF) Members Investment Scheme, Wong added.

The FMUTM, the industry’s umbrella body, has been urging the Government to liberalise the pension industry to include unit trusts as a potential investment tool for the working public.

The plan is not new. Europe and the US have blazed the trail of unit trust investing.

The US’ mutual fund market is larger than its banking sector simply because social security employers and employees can contribute to the 401(k) plan, a private pension scheme that allows them to contribute portions of their income to the plan on a pre-tax basis.

FMUTM president Datuk Tunku Ya’acob Tunku Abdullah said last year that the Securities Commission had announced that the industry will be consulted on the introduction of unit trust funds for retirement purposes.

“We strongly believe that this initiative will boost the retirement savings of the people and also the local capital market,” Tunku Ya’acob said.

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