Unit Trusts
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What is a Unit Trusts?
Unit Trusts is a form of collective investment that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, and/or other securities. Because they invest in a pool of investment tools, they are well-diversified instruments, and so have less risk than individual stocks and derivatives. Invested over time, these returns can compound to very attractive sums unlike savings. With the right funds and proper planning, you can reap good returns.
They are managed by professional fund managers whose job is to generate a good return for your money. The portfolio manager trades the fund's underlying securities, realizing a gain or loss, and/or collects the dividends or interest income. The investment proceeds are then passed along to the individual investors.
So what are the advantages of investing in Unit Trusts?
- Advantage of Diversification
It offers the advantage of diversification because it buys into a variety of stocks/bonds.
- Less Stress and Work
They are managed by fund managers and they will take care of the allocation, buying and selling decisions and so on. The only work that need to be done by you is to assess the potential of growth in the sector/country you are interested in investing.
- Invest all over the world without too much hassle.
If you invest in stocks, you can usually invest in the stocks of your own country because of the ease of obtaining information and familiarity. But unit trusts are invested all over the world and in various business sectors. This way, you have a lot more opportunities. Think China or India might boom? How about Commodities? Unit trusts picks out the best companies in these sectors for you.
- You only need a small amount of investment to start with
Initial investments into a unit trust start mostly at $500 and $1000. You can even set up a regular savings plan, so that you automatically acquire a certain amount of units every month. With unit trust, a small sum buys you into a well-diversified portfolio.
- Redemption is easier
Investing in stocks, there is the problem of whether you are able to sell because it depends on the market. But with unit trusts, the issuer is bound by their agreement to buy it back from you at the day's prevailing price no matter how large the number of units you hold (but note there is a minimum number units for redemption).
- Possibility of reaping tremendous returns
Over the long term, unit trust investment can reap very handsome returns. Some unit trusts have returned more than 200% in a year. But this is a rare case and it takes tremendous skills. More realistic would be 15% - 20% average annualized returns.
Risk of Investing in Unit Trust
Please see Risk of investing in Unit Trusts.
Start Investing in Unit Trust
Please see Start Investing in Unit Trusts
Disclaimer: This article above merely reflects the personal views of the writer and does not constitute investment advice. All readers are advised not to place any undue reliance on the article, and to consult their own professional advisors where relevant. Neither the writer nor mymonies.info shall be liable for any losses incurred by any readers who make investment decisions based on the information above.
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