
What to note when investing in unit trusts
If you're new to investing, consider these 6 key points about unit trusts to help you make informed decisions aligned with your financial goals:
1. Diversification
Unit trusts offer a simple and affordable way to diversify your investments, especially beneficial for those with limited capital.
Many hold over 100 stocks and bonds, providing broad exposure across various sectors and asset classes, and significantly reducing the risk of concentrating your investments. This ease of access to diversification is a key advantage of unit trusts.
2. Investments options
Bearing in mind your individual investment preferences and risk tolerance, unit trusts offer a diverse range of options.
Funds often specialise in specific areas, such as global or Asian equities, particular sectors (technology, consumer discretionary), asset classes (investment-grade or high-yield bonds, commodities like gold), or even currencies (Forex).
Take the time to research and select a fund that aligns with your goals.
3. Professional management
Unit trusts offer professional management, relieving investors of the burden of individual security research and selection.
Fund managers conduct in-depth research, select investments, and actively manage the portfolio, aiming to maximise returns. This also includes ongoing monitoring of market conditions, security selection, portfolio rebalancing, and adherence to regulatory requirements for transparency (including disclosure of past performance, benchmark comparisons, fees, and holdings).
While this active management may lead to higher returns, it also typically results in higher operating costs.
4. Liquidity
Unit trusts generally offer convenient liquidity, allowing for relatively quick buying and selling of units.
While not as liquid as exchange-traded funds (ETFs), which trade on exchanges, unit trusts typically facilitate withdrawals within a short timeframe—often by the end of the trading day or week—through private markets and distributors such as banks. Therefore, they are considered a reasonably liquid investment option.
Flexibility
Unit trusts offer flexible investment options with no lock-in periods, allowing for relatively easy access to your funds. That said, it is typically recommended that you invest with a long-term lens in order to reap the benefits of investing such as staying invested in the market to ride out volatility and compounding returns.
With that in mind, having flexibility allows you to adapt your strategy as needed, using lump-sum or monthly investments through a regular savings plan to suit your budget.
Note that in Singapore, you have the right to cancel a unit trust purchase within 7 calendar days from the date of the purchase agreement (excluding additional investments in existing funds or those listed on the Singapore Exchange).
Fees
While unit trust investors do not incur commissions and trading fees associated with exchange-traded securities, investors should be aware of other applicable charges.
These include management fees, transaction costs, and potentially front-load or entry fees, and distribution fees. Comparing fees across different unit trusts may be crucial for maximising your returns over the long-term.