Friday, June 15, 2007

Unit Trust (Part 1)

Unit Trust is one of the most common form of investment in Singapore. We can use Cash, SRS, CPF Ordinary & Special Account to invest in it. It is perhaps the most accessible way for small investors to invest in Stocks and Bonds locally and abroad.

What exactly is Unit Trust?
Unit Trust is an investment scheme where a fund manager pools money from numerous investors to invest in a portfolio of assets such as money market instruments, bonds and stocks.
The investors pay a management fee to the fund manager in return.

Who are involved in a Unit Trust Arrangement?
a) Investors
Can be an individual, company or financial institute. They have the money and wish to maximise it. The investor obtains dividend income and capital gain if he is able to sell units at a higher price than the original purchase price
b) Investment Management Company
The Investment Management Company appoints fund managers to manage the portfolio of the Unit Trust. The fund managers monitors the financial market on a daily basis and pick the best securities to invest. They take care of the administration of the Unit Trust such as annual reporting, auditing and payment of dividends to investors
c) Trustee
Usually a financial institute that is independent of the investment management company. Their role is to safeguard the interest of the investors. They will check the fund managers regularly to ensure that the fund fulfils its investmnet objectives. They ensure proper accounting and strict audits to minimise fraud by fund managers.

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