Blog Post: Why Unit Trusts?

4 Sep 2017
5 Mins Read

Why Unit Trusts?

Most of us understand the importance of investing, as a means to supplement our life in the future. Whether it is financing children's education, buying a house or planning for retirement, investing in these areas are essential. It is less about becoming Warren Buffett wealthy, but more to achieve these goals comfortably.

Sure, we understand the "why", but it is often the "what" and the "how" that befuddles us. How do we exactly begin and what do we specifically invest in.

Indeed, you can always choose the DIY option. You can start by thinking about your asset allocation strategy and proceed to research and select the most suitable investments within those asset classes. Thereafter, you can monitor the performance of your investments and review your holdings on a regular basis.

That is certainly easier said than done. Conflicting priorities from juggling demanding careers with family life, time constraints, the amount of available funds, the degree of financial savviness and a whole host of other factors can impede us from creating and managing our portfolio properly. Amidst other more pressing priorities, investing tends to take a back seat.

However, that doesn't have to be the inevitable reality. As with many things in life, individuals can exercise the option to outsource the investment responsibility to professionals who are able to do it expertly. This comes in the form of unit trusts.

With unit trusts, investors benefit from the following:

1. Access diversification at lower cost

Investors can gain access to a diversified portfolio of assets with a relatively smaller capital outlay.

To put things in perspective, consider some of OCBC's recommended bond funds such as Fidelity European High Yield Fund, Fidelity Asia High Yield Fund and Allianz U.S. High Yield Fund, each of which invests in over 200 different securities. Investors need only expend a minimum initial purchase of S$5000 to gain exposure to such a diversified portfolio of over 200 bonds.

Compare this to the minimum cash outlay of S$200,000 required to purchase just one bond from a single issuer. Indeed, the diversification achieved through a bond fund can be prohibitively expensive to effectively replicate by an individual investor.

2. Professional management

A unit trust offers an avenue for investors to tap into a professional fund manager's resources, experience and investment expertise. Here, the fund manager will undertake these investment responsibilities and be actively alert to potentially profitable market opportunities.

3. Liquid investment

Most unit trusts are valued every business day. This means that units can be readily redeemed by investors any time on a business day, providing investors easy access to their funds.

4. Access to markets

Investors can gain access to certain foreign markets that may not be easily available to the average retail investor. For example investors may choose to park their money in funds primarily invested in specific markets such as Europe or India. By doing so, they will immediately gain access to a diversified portfolio of European or Indian assets without the hassle of having to research and pick individual stocks and incurring the costs of other associated broking inconveniences.

Indeed, nothing ever comes for free. Engaging such professional services will no doubt incur some additional costs. But as some may argue it is a small price to pay for some peace of mind knowing that your money is being looked after professionally.

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