Is it a good choice to buy unit trust? What should I look out for when buying unit trust? - Seedly

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Unit Trust

Asked by John Smith

Asked on 10 Jul 2019

Is it a good choice to buy unit trust? What should I look out for when buying unit trust?

A colleague told me he is getting about 6% per annum from a UT he bought from Aviva

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There are unit trusts that can deliver decent returns, so 6% is not an unheard of number. However, whether or not one should invest in unit trusts in the first place will come down to a number of factors, including

  • Risk appetite
  • Preference for asset classes (some UTs are in equities, some are in fixed income, others are mixed)
  • Sector preference (some people like tech stocks and hence tech UTs might be appealing)

Analysis of the unit trust also is down to several factors such as

  • Volatility
  • Peer to peer comparison
  • Sharpe Ratio
  • etc...

I presume that your colleague is probably buying from the Navigator Platform when you mention that he bought it from Aviva. What is more important is the actual unit trust that he bought.

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John Smith
John Smith

13 Jul 2019

Thank You!
Dolce Goh
Dolce Goh

18 Jul 2019

U can transfer your UTs bought from other platforms to Phillip. There is no sales charge by Phillips
Albert Tan
Albert Tan, Fin Lit Trainer at MoneyOwl
Level 4. Prodigy
Updated on 15 Jul 2019

The short answer is yes.

A unit trust offers a cost effective manner to access a diversified portfolio of investments. As opposed to buying individual shares and bonds to build your own portolio. This diversification can also happen across various countries, industries, asset classes etc.

It is also important to take note of the implicit (or hidden) costs of unit trusts. These usually come in the form of annual management fees which are net off your investment holdings. There are a number of platforms offering low cost instruments via low cost unit trusts and ETFs. When you hear of a 6% p.a. return, that is just one side of the story. Always have this habit of probing further. Just like in the world of social media, you almost always only just hear of/see the good stuff. Nobody goes around sharing "Wow my portfolio has been yielding -6% year on year since I started x years ago!" It is highly possible his portfolio generated 6% p.a., but how consistent was this performance?

Sometimes we may become too caught up in the noises of geopolitical events and make short term decisions which affect our long term goals. Fund returns does not equal investor's returns due to many factors such as exiting the market at the wrong time etc. It does help to have an competent and qualified adviser to walk this investment journey with you through times when the most difficult thing could be to do nothing.

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John Smith
John Smith

13 Jul 2019

Thank You!
Sin Ting So
Sin Ting So, Head Of Client Experience at Endowus
Level 4. Prodigy
Answered on 15 Jul 2019

Dear John,

We have written some articles on Endowus Insights on investing in unit trusts that you will hopefully find useful:

What Singapore-based investors need to know before investing in unit trusts or ETFs

Mutual fund investing: How to reach a mutual fund factsheet

Just to add on to Albert's point above on fees (very key!)

A guide to getting ripped off: a dictionary on mutual fund fees

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I am invested in UT too and it allows me to get access to market that is not so easily accessible. At the same time the diversification that a UT creates is something that I believe in too. What you should look at in UT depends on 1. risk appetite

  1. Equities or bonds?

  2. Do you want dividends?

  3. What countries or region are you interested in?

  4. What market segment are you favorable in?

These are the questions that you should be asking.

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