Sunday, June 17, 2007

Unit Trust (Part 2)

Why Invest in Unit Trust?
1) Risk diversified
Unit trust consist of many different stocks and bonds. If you owns $5,000 of UTs, you are actually owning a lot of different investments, not just 1 or 2.
2) Fund Management
You can engaged professional fund managers to choose the stocks or bonds to invest
3) Liquidity
You can buy and sell your UTs anytime. Unlike shares, you need to find a buyer.
4) Low Capital Requirement
With as low as $1,000, you can start an investment
5) Access of Foreign Financial Markets
You can buy into different countries, different sectors. Unlike stocks, you likely to buy only local ones.

Unit Trust Charges
1) Front End Charges (Bid-Offer Spread)
Payable whenever you first buy the UT. Usually 1% to 5% of the value of the fund at point of purchase
2) Switching Fee
Payable whenever you switch from one UT to another. Usually 1% for funds in the same management, 2.5% for funds in different management. Free if its an ILP.
3) Management Fee
This fee is paid to fund managers. Its usually around 0.5% to 2% of the total fund in management.
4) Other Expenses
Other operating expenses such as
Trustee Fee, Admin Fee, Custodian Fees, Advertising Fees, etc

(1) and (2) are the Charges on the Investors' end. They affects your starting invested funds.
(3) and (4) are the Charges on the Investment Fund. They forms the Expenses Ratio which will affects fund returns.

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