Friday, August 7, 2009
Sunday, August 2, 2009
Understanding Risk
Any investment carries with it an element of risk. Therefore, prior to making any investment, prospective investors should consider the following risk factors:
1. Market Risk
Any purchase of securities will involve an element of risk, As unit trust funds principally invest in listed stocks they may be prone to changing market conditions as a result of global, regional or national economic conditions, governmental policies or political developments. Market uncertainties and fluctuations in the market caused by these uncertainties will affect the net asset value(NAV) of unit trusts which may fall or rise, thus causing the income generated by the fund to fluctuate.
2. Liquidity Risk
The various securities that are purchased by a fund may encounter liquidity risk. Liquidity risk relates to the fund’s ability to quickly and easily trade at a reasonable price, in and out of positions. Should a fund comprise a security that has become temporarily or permanently illiquid or difficult to sell, the fund manager may need to sell the security at a discount to its fair value, which eventually affects the fund’s value.
3. Management Risk
Performance of the fund depends on the experience, expertise, knowledge and investment techniques of the fund manager. Poor management of a fund can cause considerable losses to the fund, which in turn may affect the capital invested.
4. Inflation Risk
Ideally the purpose of any investment is to secure returns that are greater that the inflation rate. While a fund will constantly seek to maximize returns and exceed inflation rate, it may occasionally experience losses, which result in returns that will not keep pace with inflation in the short run.
5. Interest Risk
Fixed income securities and bonds are particularly sensitive to movements in interest rates. When interest rates rise, the value of fixed income securities and bonds fall and vice versa, thus affecting the NAV of the fund. The general interest rate of the country may affect the value of the investment even if the fund(e.g Syariah Fund) does not invest in interest bearing instruments.
1. Market Risk
Any purchase of securities will involve an element of risk, As unit trust funds principally invest in listed stocks they may be prone to changing market conditions as a result of global, regional or national economic conditions, governmental policies or political developments. Market uncertainties and fluctuations in the market caused by these uncertainties will affect the net asset value(NAV) of unit trusts which may fall or rise, thus causing the income generated by the fund to fluctuate.
2. Liquidity Risk
The various securities that are purchased by a fund may encounter liquidity risk. Liquidity risk relates to the fund’s ability to quickly and easily trade at a reasonable price, in and out of positions. Should a fund comprise a security that has become temporarily or permanently illiquid or difficult to sell, the fund manager may need to sell the security at a discount to its fair value, which eventually affects the fund’s value.
3. Management Risk
Performance of the fund depends on the experience, expertise, knowledge and investment techniques of the fund manager. Poor management of a fund can cause considerable losses to the fund, which in turn may affect the capital invested.
4. Inflation Risk
Ideally the purpose of any investment is to secure returns that are greater that the inflation rate. While a fund will constantly seek to maximize returns and exceed inflation rate, it may occasionally experience losses, which result in returns that will not keep pace with inflation in the short run.
5. Interest Risk
Fixed income securities and bonds are particularly sensitive to movements in interest rates. When interest rates rise, the value of fixed income securities and bonds fall and vice versa, thus affecting the NAV of the fund. The general interest rate of the country may affect the value of the investment even if the fund(e.g Syariah Fund) does not invest in interest bearing instruments.
Type Of Unit Trust
1. Equity Funds
An equity unit trust is the most common type of unit trust. The major portion of its assets are generally held in equities or securities of listed companies.
Equity unit trust funds are popular in Malaysia as they provide investors with exposure to the companies listed on Bursa Malaysia. The performance of the units is therefore linked to the performance of Bursa Malaysia. A rising market will normally give rise to an increase in the value of the unit and vice-versa.
There is a wide array of equity unit trusts, available in the market, ranging from funds with higher risk, higher returns to funds with lower risk, lower returns.
a. Aggressive growth funds
These funds invest generally in companies with higher capital growth potential but with associated higher risk
b.Index funds
These funds invest in a range of companies that closely match (or “track”) companies comprising a particular index.
c.International equity funds
These funds invest primarily in overseas share markets.
2. Fixed Income Funds
These funds invest mainly in Malaysian Government Securities, corporate bonds, and money market instruments such as bankers acceptance and fixed deposits. The objective of a fixed income (or bond) funds is usually to provide regular income, with less emphasis on producing capital growth for investors. It is possible, however, for fixed income funds to generate both capital gains and losses during a period of volatile interest rate.
3. Money Market Funds
Money market funds operate in a similar way to a bank account-the unit price is normally set at a fixed amount. Money market funds invest in low risk money market instruments that are in effect short-term deposits(loans) to banks and other-low risk-financial institutions, and in short-term government securities.
4. Real Estate Investment Trusts (REITS)
REITs invest in real properties, usually prominent commercial (office) 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. By acquiring units in a listed REITS, however, it is possible to invest a small amount to gain exposure to the property market and have diversification in your portfolio.
5. Exchange Traded Funds (ETF)
ETF is linked unit trust fund whose investment objective is to achieve the same return as a particular market index. ETF often have low expense ratios and can be bought and sold throughout the trading day through a stockbroker, on an exchange.
6. Balanced Funds
Some investors may wish to have an investment in all the major asset classes to reduce the risk of investing in a single asset class. A balanced unit trust fund generally has a portfolio comprising equities, fixed income securities, and cash.
7. Syariah Funds
The main objective of Syariah funds is to provide an alternative avenue for investors sensitive to Syariah requirements. Syariah funds will exclude those companies involved in activities, products or services related to conventional banking, insurance and financial services, gambling, alcoholic beverages and non-halal food products.
An equity unit trust is the most common type of unit trust. The major portion of its assets are generally held in equities or securities of listed companies.
Equity unit trust funds are popular in Malaysia as they provide investors with exposure to the companies listed on Bursa Malaysia. The performance of the units is therefore linked to the performance of Bursa Malaysia. A rising market will normally give rise to an increase in the value of the unit and vice-versa.
There is a wide array of equity unit trusts, available in the market, ranging from funds with higher risk, higher returns to funds with lower risk, lower returns.
a. Aggressive growth funds
These funds invest generally in companies with higher capital growth potential but with associated higher risk
b.Index funds
These funds invest in a range of companies that closely match (or “track”) companies comprising a particular index.
c.International equity funds
These funds invest primarily in overseas share markets.
2. Fixed Income Funds
These funds invest mainly in Malaysian Government Securities, corporate bonds, and money market instruments such as bankers acceptance and fixed deposits. The objective of a fixed income (or bond) funds is usually to provide regular income, with less emphasis on producing capital growth for investors. It is possible, however, for fixed income funds to generate both capital gains and losses during a period of volatile interest rate.
3. Money Market Funds
Money market funds operate in a similar way to a bank account-the unit price is normally set at a fixed amount. Money market funds invest in low risk money market instruments that are in effect short-term deposits(loans) to banks and other-low risk-financial institutions, and in short-term government securities.
4. Real Estate Investment Trusts (REITS)
REITs invest in real properties, usually prominent commercial (office) 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. By acquiring units in a listed REITS, however, it is possible to invest a small amount to gain exposure to the property market and have diversification in your portfolio.
5. Exchange Traded Funds (ETF)
ETF is linked unit trust fund whose investment objective is to achieve the same return as a particular market index. ETF often have low expense ratios and can be bought and sold throughout the trading day through a stockbroker, on an exchange.
6. Balanced Funds
Some investors may wish to have an investment in all the major asset classes to reduce the risk of investing in a single asset class. A balanced unit trust fund generally has a portfolio comprising equities, fixed income securities, and cash.
7. Syariah Funds
The main objective of Syariah funds is to provide an alternative avenue for investors sensitive to Syariah requirements. Syariah funds will exclude those companies involved in activities, products or services related to conventional banking, insurance and financial services, gambling, alcoholic beverages and non-halal food products.
The Sun Tuesday August 26 2008 - What is your best advice on how to choose a Unit Trust fund or to begin investing?
A1: Chai Sok Ling from Petaling Jaya
Everyone should have a financial plan. Unfortunately, due to limited options in the past, most people still have doubts and continue to prefer fixed deposits. However, we need to change our mindsets, be flexible and willing to explore new investment options available. Through personal experiences, unit trust still remains my favorite investment choice though I have invested in stock market, fixed deposits, insurance and others. Everyone has to start somewhere and my research on unit trusts has led me to the following conclusions:
1. Identify your financial goals, initial investment and your target return on investment
2. Broaden your investment knowledge by reading up and doing your homework
3. Have a regular saving plan (e.g. monthly)
4. Constantly evaluate your investment portfolio according to your objective
5. Acknowledge the risks involved
It doesn’t bother me that my unit trust funds have not been performing well due to market uncertainties. Instead, my investment strategy is to buy more funds at lower prices as price averaging plays a vital role in the overall returns. When the economy picks up, I will be able to sell at a higher price as long as it does not tamper with my investment objective.
A2: Jolly Lee Shiat Mei from Bintulu, Sarawak
To me, saving and investments are not supposed to be rocket science. If you want to save, the rule of thumb is to pay yourself first before you pay others. So, mathematically, EXPENDITURE equals to INCOME minus SAVINGS/INVESTMENTS (INCOME - SAVINGS/INVESTMENTS = EXPENDITURE). Spend only after you put aside your savings and investments. If you are not disciplined enough, incorporate forced savings into your monthly regime; for example have a fixed ampunt automatically paid out from your bank account into saving plan or investment vehicle at the beginning of every month.
To invest in unit trust funds, first, identify the type of investments according to your objectives, risk level, time horizon, amount to be invested and return targets. Most importantly, stick to the original objectives despite receiving numerous tips or advice later on.
Everyone should have a financial plan. Unfortunately, due to limited options in the past, most people still have doubts and continue to prefer fixed deposits. However, we need to change our mindsets, be flexible and willing to explore new investment options available. Through personal experiences, unit trust still remains my favorite investment choice though I have invested in stock market, fixed deposits, insurance and others. Everyone has to start somewhere and my research on unit trusts has led me to the following conclusions:
1. Identify your financial goals, initial investment and your target return on investment
2. Broaden your investment knowledge by reading up and doing your homework
3. Have a regular saving plan (e.g. monthly)
4. Constantly evaluate your investment portfolio according to your objective
5. Acknowledge the risks involved
It doesn’t bother me that my unit trust funds have not been performing well due to market uncertainties. Instead, my investment strategy is to buy more funds at lower prices as price averaging plays a vital role in the overall returns. When the economy picks up, I will be able to sell at a higher price as long as it does not tamper with my investment objective.
A2: Jolly Lee Shiat Mei from Bintulu, Sarawak
To me, saving and investments are not supposed to be rocket science. If you want to save, the rule of thumb is to pay yourself first before you pay others. So, mathematically, EXPENDITURE equals to INCOME minus SAVINGS/INVESTMENTS (INCOME - SAVINGS/INVESTMENTS = EXPENDITURE). Spend only after you put aside your savings and investments. If you are not disciplined enough, incorporate forced savings into your monthly regime; for example have a fixed ampunt automatically paid out from your bank account into saving plan or investment vehicle at the beginning of every month.
To invest in unit trust funds, first, identify the type of investments according to your objectives, risk level, time horizon, amount to be invested and return targets. Most importantly, stick to the original objectives despite receiving numerous tips or advice later on.
The Sun Tuesday September 2 2008 - Tell us your best tip on how to get started to invest in unit trust?
A1: Lee Tze Yan, Subang Jaya
1. Before investing in Unit Trust (UT) funds, I will check the company’s bakgroundof the said investment. This include a check on the shareholders, board of directors and the company’s investment and management team. To me, this is the utmost importance as I have to know who is being given the ‘mandate’ to manage my money. The simplest way is to browse the company’s website.
2. Secondly, I must also understand the fund’s investment objectives, its related strategies, current portfolio, and not forget its past performance, if any, as it gives me a rough idea of the risk level of the fund.
3. Next, I will also try to analyse the past performance of the fund. Hence, I will look for consistent performance over the long term. However, I do understand that past performance is not a guarantee for the future performance.
4. Lastly, I will take note of any specific features and constraints which may not meet my requirements. For instance, some funds might have policy of not distributing income or the minimum investment required may be much higher that what I wish to invest.
A2: Wan Azmi Wan Ismail, Sentul Utama
First of all, I would like to stress that UT funds differ from company shares or debentures. The underlying assets of the fund can comprise of a combination of local or global instruments such as shares, bonds, and money market instruments. The advantage of investing in UT funds is that professional fund managers are tasked with monitpring your investment portfolio and unlike shares, you need to monitor them on a daily basis. These managers have access to real-time information and research statistics from analysts and economists globally and should be able to make sound investment decisions.
1. Before investing in Unit Trust (UT) funds, I will check the company’s bakgroundof the said investment. This include a check on the shareholders, board of directors and the company’s investment and management team. To me, this is the utmost importance as I have to know who is being given the ‘mandate’ to manage my money. The simplest way is to browse the company’s website.
2. Secondly, I must also understand the fund’s investment objectives, its related strategies, current portfolio, and not forget its past performance, if any, as it gives me a rough idea of the risk level of the fund.
3. Next, I will also try to analyse the past performance of the fund. Hence, I will look for consistent performance over the long term. However, I do understand that past performance is not a guarantee for the future performance.
4. Lastly, I will take note of any specific features and constraints which may not meet my requirements. For instance, some funds might have policy of not distributing income or the minimum investment required may be much higher that what I wish to invest.
A2: Wan Azmi Wan Ismail, Sentul Utama
First of all, I would like to stress that UT funds differ from company shares or debentures. The underlying assets of the fund can comprise of a combination of local or global instruments such as shares, bonds, and money market instruments. The advantage of investing in UT funds is that professional fund managers are tasked with monitpring your investment portfolio and unlike shares, you need to monitor them on a daily basis. These managers have access to real-time information and research statistics from analysts and economists globally and should be able to make sound investment decisions.
Saturday, August 1, 2009
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