Introduction to UNIT TRUST

The Basics (Introduction to unit trust)
A unit trust fund is a collective investment scheme, which pools the savings of investors with similar investment objectives in a special "trust" fund managed by professional fund managers. The fund will then be invested in a diversified portfolio of equities, fixed income securities and other assets in accordance with the fund's investment objectives and as permitted under the SC's Guidelines on Unit Trust Funds. The organisation of a unit trust fund is a tripartite relationship between the manager, the trustee and the unitholders. The obligations and rights of each of the three parties are specified in the Deed, a legal document drawn up by the manager and registered with the SC. The Deed is designed to govern the operations of the trust fund and protect the unitholders' interests. The manager is responsible for the management and operations of the trust fund whilst the trustee holds all the assets of the fund.

Mode of Operation (Governed By The Deed)

Knowing what you are saving / investing for

All journeys have one thing in common, a destination...and here are some events in your life you may wish to save for:
- Putting your child through private education.
- The wedding of your dreams.
- A new home.
- Your retirement.
Of course, you may not want to invest for any other reason than to make the most of your money. Unit trusts in general has a proven record over the long term to help you do just that.

Understanding risks and returns
Why investors should understand the meaning of risks? There is a direct relationship between risk and reward. A fundamental principle of investment is the risk reward trade-off associated with every investment decision made. The higher the risk, the greater the reward, but the reverse is also true! There are generally, three basic types of investment risk :
*General market risk that relates to a broad range of investments and is largely dependent on economic conditions and internal markets.
*Market sector risk that relates to a particular sector of a market, for example, financial stocks will perform better than plantation stocks at a particular period of time. This form of risk can be managed by carefully monitoring the economic scene with a view to identifying the winners and losers.
*Specific risks that relates to the performance of a particular security or property in an investment portfolio. For example, the performance of a specific company's share. The specific risk that one investment will not perform, over another can be minimised by carefully investigating and researching before buying and performing regular ongoing checks.
Since unit trusts invest in marketable securities, they are exposed to market environments. Fund managers seek to mitigate risks by building a broadly based portfolio.
Different types of funds involve different degrees of risk. Bond funds have historically proven to have less risk to capital than equity funds, since they are affected less by the fluctuations of the stock market. While equity investment can be more risky, it is more likely than a bond fund to provide long-term capital growth.

Benefits of Unit Trusts
*Access to markets and overseas opportunities. Unit trusts give you the opportunity to invest in specialised and/or overseas markets. Again, it would be difficult or impossible for an individual to access such markets directly due to limited capital resources as well as time required to be spent on careful research to gain in-depth knowledge of these markets.
*Low minimum investment. With as little as RM1,000, you can invest into a wide range of securities that you might otherwise not have access to. There are also regular savings plans which start from as low as RM100 so that you can continuously build on your investments.
*Professional management. Few of us are investment experts. The great thing about investing in unit trusts is that you leave your money in the hands of experienced professionals who devote their time to ongoing research and managing the funds.
*Spreading the risks. As a unit trust buys into a range of securities, the investment risk is reduced. This is because if any particular security proves to be a bad investment, the impact on such a diversified portfolio is not as significant as having put all eggs in one basket.
*Investments to cater to different objectives. There are many types of funds to meet a variety of financial objectives and an investor can use a portfolio of funds to achieve his or her objectives.
Investors would have different objectives when they invest. If you are planning to invest for your retirement 30 years later, you might consider using growth-oriented equity funds that have traditionally delivered healthy returns over a longer period. Other funds such as bond funds are suitable for those who prefer steady returns with lower risks.

Choosing the right fund for you
*What are your goals? Before you invest, determine your objectives and time horizon, and then balance them against the risks you are prepared to take. For example, if your goal is to accumulate wealth over a long period of time, your portfolio may comprise more equity funds than bond funds to focus on capital growth.
*What is your risk tolerance? It is not enough to want the highest returns on your investments as risks and returns go hand in hand. A high risk-taker would be prepared to weather a few knocks in exchange for the possibility of higher rewards. A more conservative investor would opt for steady but relatively lower returns and greater stability.
*Think medium to long-term. Most unit trusts offer potentially good returns over the long run. However, be prepared to hold onto your investments as unit trusts are regarded as medium to long-term investments
Just like many other investments, the value of unit trusts can rise and fall on a daily basis. But don't panic. If an investment temporarily falls, this can sometimes provide an excellent opportunity to invest more money, averaging your price when the market offers good value.

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ABOUT FINANCIAL PLANNING

People of Today - What Do They Want?

In today's fast growing economy, people are not only working towards financial growth and stability they are also looking towards a better lifestyle for themselves and their family. While chasing dreams of early retirement, sending their children for overseas tertiary education, owning a few units of properties and a diversified portfolio of investment instruments, many questions are left unanswered.

Often people have not taken sufficient steps to ensure that their assets are protected from risk as well as ensure that their dependants are adequately taken care of financially in the event they are no longer around or in active employment. While steps have been taken to ensure that there are some forms of assets distribution arrangements, the funds required during the interim period may not be adequately set aside or worse, these funds are not taken into consideration when making the arrangements.

Also, many of the people while investing their monies and receiving investment return had not been able to analyze the actual rate of return after inflation. In fact, their investment strategies may not be in-line with their Financial Goals and Objectives without them realizing it.


Realizing Financial Goals - What Do They Need?

How then can people fulfill their Financial Goals while maintaining their current lifestyle and make their savings work harder for them? What do people require in order to ensure that all aspects of achieving their Financial Goals are taken care of? When their life circumstance changes, how do they know what impact all these issues have on their existing strategies. What should they do?

The most talked about process today is Financial Planning. Although Financial Planning is relatively new to many people in Malaysia, it has been practiced in USA for more than 40 years. In Malaysia today, Financial Planning as a profession is regulated by the Securities Commission. Its importance and development stems from the recommendations in both the Capital Market Masterplan 2001 and Financial Sector Masterplan 2001.


Financial Planning - What is it all about?

Simply, Financial Planning is about helping an individual achieve his or her Financial Goals from where he or she is today. To many people, Financial Planning is a complicated process and that only the rich need to worry about it. Is this true? The answer is "No".

In fact, all of us need some form of Financial Planning. When we first purchase a house, we need to ascertain how much we can afford, how much loan to take, which financial institutions is giving the better rate and which loan is best suited to me for better cash flow management. When we invest our hard earned savings, we need to find out about our risk appetite, the time period of investment, the anticipated rate of return and asset portfolio.

If we need to categorize the different stages of the wealth management process and its solutions, it can be best described as follows:

1. Wealth Protection
- Insurance

2. Wealth Growth
- Unit Trust Funds
- Equities
- Properties
- Savings accounts etc

3. Wealth Creation
- Insurance

4. Wealth Distribution
- Wills
- Trust


Doing Financial Planning - What are the Benefits to Me?

1. Investment Growth Strategies for better Return on Investment.
2. Financial Protection in case of Disability and Critical Illness (when removed from Employment
Permanently or Temporary)
3. Health and Medical Coverage for Hospitalization and Surgical Costs
4. Safeguard Family Income to ensure Continuity of Lifestyle
5. Children's Tertiary Education especially for Overseas Education
6. Retirement Funds for Independent Post-Retirement Lifestyle
7. Emergency Funds for Contingency and Replacement Costs
8. Estate Distribution to ensure Proper Administration of Estate and Protection of Family's Assets


Financial Planning Process - What Do I Need to Know?

The Financial Planning Process involves a Six Step Process.

1. Establishing and Defining your Relationship with your Planner
2. Gathering of your Personal and Financial Data including Goals
3. Analyzing and Evaluating your Financial Status
4. Developing and Presenting Financial Planning Recommendations and/or alternatives
5. Implementing the Recommendations
6. Monitoring the Recommendations