How to Invest in Unit Trust in Malaysia

In this post, I will share with you how to invest in Unit Trust in Malaysia.

I will cover the following:

What is Unit Trust
Why you should invest in Unit Trust
Who Should Invest in Unit Trust
Types of Unit Trust in Malaysia
How to screen Unit Trust
Strategies to Invest in Unit Trust
Advantages of Unit Trust
Disadvantages of Unit Trust
Risks in Unit Trust
Fees in Unit Trust
How to find a good unit trust agent

Before we start, do check out the brief introduction of Unit Trust in below's 2 podcasts by Securities Commission Malaysia (SC), interviewed by BFM 89.9.
It gives a good overview of what and how to invest in a unit trust.

Unit Trust Part 1

Spokesperson: Stephanie Yew

Organisation: Securities Commission Malaysia (SC)

Topic: Performance: Regularly check the performance of your unit trust funds

Unit Trust Part 2

Spokesperson: Puan Salmah Bee

Organisation: Securities Commission Malaysia (SC)

Topic: Cost of investing: Enquire and shop around for the best funds with the best fees.

What is Unit Trust

In Malaysia, there are many unit trusts are being offered. Sometimes when you walk in the mall, someone will approach you to buy unit trust. They always set up booths to get leads.

And not forgetting your long lost "good friend" that will suddenly call you up for "yumcha", and talk about how to grow your wealth. Then they will push you a unit trust to buy.

Unit trust by itself is neutral. Whether it is good for you or not, you need to define your investment objective, goals and personality.

Objective
If you want to invest for medium to long term (> 3 years), you can consider unit trust.

Goals
If you aim to have an investment that gives you a return in the range of 5% to 8% p.a, you can consider a unit trust. Will not that unit trust return be potentially lower or higher than that? Not really. This is just an estimation. At the end of the day, nothing is really guaranteed in any investment. Run away if you encounter anyone that says the investment is 100% guaranteed to you. Anything higher is a bonus. Anything lower, better review the fund closely and take necessary action after seeking professional advice.

Personality
If you are someone that is always busy and do not have much time to spend analyzing individual stock performance, then you can consider unit trust investing.
If you are someone that prefer to have a professional to handle your investments, then you can consider unit trust investing.

Risk
Do note all kinds of investments have risks. Similarly, unit trust also has risks.
However the benefits of a unit trust is the power of diversification, thus reduces risk to exposure to a single stock investment that may not perform well due to poor business performance.

Why You Should Invest in Unit Trust

One of the reasons you should invest is that you can grow your wealth through the power of compounding effect.

To do a proper investment moves, we need to have good sufficient knowledge and skills so that we will not make unnecessary investment mistakes that will cost us thousands of dollars.

Not to mention the stress and time it needs to spend.

What unit trust offers is that there is a professional management team that will help you to manage your assets portfolio (equity, bonds, money market etc).

The knowledge, skills, experience and exposure that these management team have will definitely give you an edge versus the average investor that just blindly invests and trade for quick bucks that is not sustainable.

Thus, investing in unit trust will definitely save you a lot of time, so that you can focus on the things that matters, like your career, business, personal development, friends and family.

Putting your money in the right fund that matches your investment objective will definitely help to grow your net worth over the long term.

Who Should Invest in Unit Trust

If you are one of the following group of people, then you should consider investing in unit trust:

- Do not have much time daily to analyze the stock market due to work, business or family commitment

- Want to have exposure to the different asset class

Unit trust also offers some criteria that other investment do not offers:

- Diversification through low cost

Basically, you can have exposure to many good quality stocks just through 1 fund, with as low as RM100 per month.

You can diversify through different

Sectors

Technology

Consumer

Banking

Construction

etc

Type of equities

Big Cap

Mid Cap

Small cap

Penny Stock

Region

Malaysia

China

Singapore

India

Indonesia

Europe

Australia

Emerging Market

South East Asia

etc

Asset Class

Cash / Money Market

Bond

Equities

Real Estate / Commercial Property

etc

Types of Unit Trust Funds in Malaysia

There are basically hundreds of unit trust funds in Malaysia.

We can easily got lost looking at the long list sometimes.

As of Oct 2019, there are about 676 funds in Malaysia!

Check it here >> Malaysia Unit Trust Funds

So how many types of funds are there?

Let us go through the list below.

A. Equity Funds

Mainly invest in the stocks of the public listed companies. This is the most common funds in Malaysia. If the price of the underlying stocks increases in Bursa Malaysia, the unit prices will increase as well. Basically equity fund has the highest risk but offers higher returns.

B. Balanced Funds

Combine both type:

i) Equities

ii) Fixed income and cash

Equities offer capital growth, in line with the stock market, but at the same time offers regular income in terms of dividends payout for the investor.

However, since fixed income generally does not have much capital growth, these funds generally lag the bull run for stock market.

C. Bond / Fixed Income Funds

Mainly invest in

- Malaysian Government Securities

- Corporate bonds

- Debt Instruments, such as mortgage-backed securities

More to regular income over capital growth.

Prices of funds are more stable over equity funds.

However, during times of volatile interest rates, the fluctuation may be significant as fixed income securities are more sensitive to movement in interest rates.

D. Money Market Funds

Mainly invest in low risk, highly liquid investments, such as

- short term debentures
- short term money market instruments
- placements in short term deposits

Offers the lowest risk, but also lowest returns.
The return may not be able to best inflation over the long term.

E. Capital Guaranteed Funds (CGF)

A unit trust fund with a limited lifespan, usually between 3 to 5 years, that is structured to guarantee investment capital at maturity.
Main purpose is capital preservation.
However, there is still risk of default.

F. Islamic Unit Trusts / Syariah Funds

Invest based on Islamic principles, invest in Syariah compliant securities that are not involved in
- gambling
- alcoholic beverages
- non-halal products
- Also excludes shares of companies that are involved in conventional banking, insurance or financial services

The returns offered by an Islamic unit trust will avoid the incidence of 'riba' (usury interest) through the process of cleansing or purification by the removal of such amount representing the interest element, which is then normally donated to charities.

G. Real Estate Investment Funds (REITS)

Invest in real properties, usually prominent commercial properties and provide the investor with an opportunity to participate in the property market in a way which is normally impossible to the small time investor. REITs also provide an easy way for investors to obtain real estate without the headache of being actual property owners.

REITs derive stream of income from the rental of the properties.

A REIT must have at least 50% of the fund's total asset invested in real estate and single-purpose companies, which are unlisted companies with real estate as principal assets.

H. Exchange Traded Funds (ETF)

An ETF is a unit trust scheme that is listed and traded on a stock exchange. An open-ended fund with no expiry date, it usually tracks or replicates the performance of a benchmark index. This means that ETF investors hold units of a fund that invests in a number of securities.

ETFs offer investors a cheaper and easier way to gain exposure to a basket of securities represented in an index through a single transaction. The basket of securities could consist of either stocks, bonds, commodities or other instruments.

Investors can buy or sell units of the ETFs on the stock exchange through any remisier, just like how they buy or sell stocks. They are required to have a Central Depository System (CDS) account and a trading account - that they use for trading stocks - to trade ETFs.

The types of funds you choose will really depend on your
- investment objective
- expected return
- risk tolerance

Do have the answers to the above, so that deciding which types of funds that are suitable to you will be easier.
Go through the unit trusts in Malaysia that can meet your criteria and screen accordingly.

By the way, you can track the funds performance online as well here:
The Star Unit Trust Funds Price Tracking

Strategies to Invest in Unit Trust

You can basically opt for the common 3 ways below or a combination of it:

1. Cash or Lump Sum Investment

Invest through a lump sum of cash into a unit trust fund.
Take advantage of capital appreciation.

2. Regular Saving

Basically do a monthly investment through auto-debit or through credit card also can.

The benefits of dong monthly is that you can tke advantage of dollar cost averaging effect.

By consistly investing in a fixed interval, you will buy more units when the NAV price is low, and buy less units when the NAV is higher.

Over the long term, the cost of purchasing units will be lower because investor take away the market timing.

3. EPF Members Investment Scheme

Investors may also invest into unit trust funds from their EPF Account 1 if he or she is eligible. EPF members can refer to their EPF statement as well as the Basic Savings Table to check their eligibility and quantum of investment allowed.

Basically the expectation is that the unit trust invested is going to give a higher return than 5 to 6% per year offered by EPF.
Else, why bother to withdraw the money from EPF ?

How to Find a Good Unit Trust Agent

A good unit trust consultant (UTC) will furnish you with all the necessary and important information you need in order to make an informed decision about your investment.

In general, as an investor, you should always seek clear explanations for the below topics:

1. The investment objectives of the fund

2. All the fees involved in the purchase of the fund and thereafter and the breakdown

3. The prices of units and how they are worked out

4. The risk of investing in the unit trust fund and unit trust funds generally

5. The minimum investment in the unit trust fund

6. Any special tax implication

7. Any special feature or restrictions of the unit trust fund

8. The long-term nature of unit trust investment and early withdrawal impact

9. The risk in using a loan (margin) facility

10. The distribution policy of the fund

If you need further details, do not hesitate to contact me so that I can share more to you:

Unit Trust Consultant (UTC): Mr. Lip,
Organization: Philip Mutual | FIMM
WhatsApp +6012-3243498
Email: lip.kar.lock@gmail.com

Reference:

Guide to Investment Information by SIDC
Phillip Mutual Unit Trust
EPF i-Invest Online Platform