How to Choose the Right

Unit Trust Fund for You

Razali Razman
About Me
Small Biz Owner
www.translate2malay.com
www.laburniaga.com

Blogger
www.laburniaga.blogspot.com

Author
Panduan Bijak Melabur
Panduan Pelaburan Unit Amanah
Unit Trusts - Introduction

General Definition
A collective investment instrument that
gathers investors’ money by selling units in a
professionally managed fund.
Unit Trusts - Introduction

Alternative Definition
Funds established by fund management
companies to manage investors’ money where
sales, management and other fees are charged,
regardless of whether you make a profit.
Topics
Why Invest?
Type of Funds
Fund Price
Fund Fees
Fund Selection
Purchase Techniques
Timing
Why Invest?
- To obtain better returns than normal savings
- Provide good diversification
- Take advantage of the compounding effect.
- E.g. Invest RM10,000

Rate of Return 20 Years 30 Years

8% 46,410 100,626
12% 96,462 299,599
16% 194,607 858,500
Why Invest?
Important
Savings products are almost risk free.
Unit trusts have inherent risks.

Question
An equity fund that provides 5% returns in an
expanding economy versus a deposit account that
gives 4%. Which is better?
Types of Funds
Equity Funds
Invest mainly in the stock market
Various types including growth, aggressive growth
income, theme, sectoral, foreign and savings.

Fixed Income Funds

Include bond and sukuk funds and money market
funds.
Types of Funds
Balanced Funds
Combination of stocks and fixed income
instruments
Usually between 40 – 60% of each

Index Funds
Passive Index Fund
Track the performance of the index
Active Index Fund
To beat the performance of the index
Types of Funds
Government Funds
Fixed price funds – ASB and ASW
Floating price funds – ASM
State funds – ASJ

Structured Funds
Products usually structured to guarantee capital
invested or guarantee returns
Fund Price
The unit price of a unit trust fund is its

Net Asset Value Per Unit (NAV)

Unit Price = Net Asset Value / Units in Circulation

The unit price has no comparative value

A 23 sen fund is not cheaper than a 35 sen fund
You’ll get more units with a cheaper fund
But the amount of assets it represents is the same
Fund Fees
Equity and Bond Money Market
Fees Balanced Funds Funds Funds
0%-6.5% 0%-3%
Sales Charge based on sales based on sales 0 - 0.25%
channel channel
Management 1%-2% of NAV, 0.75%-1.5% About 0.08%
Fee mostly1.5% of NAV of NAV

Trustee Fee 0.05% to 0.08% 0.05% to 0.08% 0.05% 0.08%

Free or RM25 to Free or RM25 to Free or RM25

Switching same fund same fund among the same
Fee category or category or fund category
cheaper cheaper
Fund Fees
Equity Fund Fees Based on Sales Channel
Unit trust consultants – 5% - 6.5%
Passive Index Fund – 2%
Online Purchase – 2%
EPF Savings – 3%
No load funds – 0% with conditions
Fund Selection
Suggested Steps
3.Determine Your Risk Tolerance
4.Determine Objective and Time Horizon
5.Choose Fund Type
6.Read the Prospectus & Evaluate Company
7.Compare Performance With Other Funds
8.Compare Performance Against Benchmark
Fund Selection
Determine your risk tolerance
Expected Returns

Equity Fund

Balanced Fund

Bond Fund

Capital Guaranteed

Risk
Fund Selection
2.Determine objective and time horizon

Some objectives:
Get better returns
Prepare for retirement
Fund kids’ education
Save for home downpayment
 Fund Selection
Choose the type of fund

Select based on your:

 Risk Tolerance
 Objective
Expected Returns

 Time Horizon
Equity Fund

Balanced Fund
Bond Fund

Capital Guaranteed

Risk
Fund Selection
2.Read the Prospectus & Evaluate Company
Get background info about company
Read prospectus
Look at asset allocation and selection criteria
Look at past performance of funds in general
Fund Selection
1. Compare performance with other funds
Look at Fund Tables – Lipper, Morningstar and Normandy
 Evaluate performance over time periods, compounded returns,
fund ratings, risk based performance, volatility & 52 week high low

The Edge-Lipper Fund Table

Equity LipperLeader Fund Ratings Returns
Funds

Name Total Consistent Preservation Fund Size 3 months Rank 6 bulan Rank 1 year Rank 3 years Rank 5 years Rank
Returns Returns (million) (%) (%) (%) (%) (%)

Fund AA L L L 400 14.3 2 12.3 2 10.4 1 20.6 3 50.6 2

Fund BB 4 L L 328 12.2 4 12.8 1 9.8 2 25.7 2 45.6 3

Fund CC 4 4 4 50 13.1 3 11.4 3 8.4 3 20.5 4 40.3 4

Fund DD 3 3 4 225 12.1 5 4.5 7 8.3 4 19.3 6 28.3 6

Fund EE L 4 3 200 16.1 1 10.4 4 6.8 5 30.2 1 60.5 1

Fund FF 2 3 2 315 3.0 10 7.6 6 3.2 6 15.3 7 26.6 7

Fund GG 3 2 3 52 5.6 7 3.6 8 2..3 7 20.4 5 30.9 5

Fund HH 1 2 2 305 7.7 6 8.3 5 -1.3 8 9.5 9 15.8 10

Fund II 2 1 1 32 4.5 8 3.3 9 -2.4 9 11.0 8 17.4 8

Fund FF 1 1 1 45 3.3 9 1.0 10 -5.5 10 8.0 10 16.3 9

 Fund Selection
 Compare performance against benchmark
Benchmark index
 Index used to measure the performance of a unit trust

- High returns does not

mean good performance
- Beating benchmark over
time is sign of added value
Fund Selection
Recap
3.Determine Risk Tolerance
4.Determine Objective and Time Horizon
5.Choose Fund Type
6.Read the Prospectus & Evaluate Company
7.Compare Performance With Other Funds
8.Compare Performance Against Benchmark
Purchase Techniques
 Lump Sum Purchase
 When to buy?
 One or more funds?
 Big Sum Divided Into Smaller Amounts
 Dollar Cost Averaging
 Eliminate timing risk
 Can be active or passive
 Value Averaging
Timing
Timing crucial for lump sum purchases
Huge difference if you buy equity funds when
c.Market peaked at around1500 pts in early 2008
d.Market at bottom of 800 pts in late 2008
FBM KLCI
Final Thoughts
Put as much care and analysis as you would when you
buy your dream car or home
All else being equal, choose the channel or fund with
the lowest cost
Don’t evaluate funds by the dividends they pay
Don’tlimit yourself to just evaluating one unit trust
company
There’s no sure way of selecting the very top funds, but
analysis will ensure you don’t get a bad one
Contact
Questions can be sent to:

Blog
www.laburniaga.blogspot.com

Email
razalirazman@laburniaga.com