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Professional Investment Management
A unit trust combines the capital of many investors to employ experienced
management in purchasing securities of many companies. The management of a
unit trust provides diversification of investments and supervision which few
investors could individually afford. Investment management is a full time
job requiring specialized knowledge and training. It involves the study of a
variety of factors.
Some of the factors which have to be examined are:
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Comparisons of all industries in the economy
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Relative studies of companies within a promising
industry
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Personal contact with management of promising
corporations
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Evaluating the effect of international events,
both monetary and political
Determining the results of government policies
on each industry Professional management is also interested in studying less
obvious factors such as wage rates, which might affect the economy or the
profitability of certain companies or corporations. It requires careful
study of individual companies within the industry to determine which of the
many companies offer the best prospects for the investors. It requires
comparing this company with the best companies in other promising
industries. Since all this factors are constantly changing, re-evaluation
and study have to be continuous.
Diversification
Diversification means spreading one's investments among many securities. It
is an important method of reducing risk. It decreases the danger of damaging
losses, which can occur through having all of one's eggs in one basket.
Diversification is difficult and expensive for a small investor because the
cost of purchasing numbers of shares in many companies at the same time is
disproportionately high.
Unit trusts with their resources are able to make widely diversified
investments available to even the smallest investor. Diversification
involves the ownership of many different securities. All the securities
owned by an individual investor or unit trust fund are referred to as an
investment portfolio.
Liquidity
An investor can sell his units, wholly or partially, at the following
trading day's unit buying price. Units have a high liquidity, that is, they
can be readily converted into cash.
It has to be remembered, however, that unit trust’s units will be redeemed
at the prevailing buying price on the following day after receipt of the
repurchase form. The unit price may be higher or lower than the price at
which the investor started the plan. Unit trusts should be regarded as a
long term, rather than short term investment.
Advantages of Compounding
Many unit trust funds provide facilities for investors to reinvest their
distributions. For those who opted for distribution reinvestment, the fund
will automatically credit the distributions into the account, rather than
sending distribution warrants.
This process of reinvesting the income from the original investment and also
of reinvesting the return on the total accumulating investments is called
compounding.
As an illustration, if at 25, you invested RM100 at the beginning of every
month at an interest growth of 10% per annum until age 65, your investment
would have grown to RM638,000 ! The key element to compounding is time. The
longer the period of time, the greater the growth.
Regularity of Investing
Many people do not have substantial sums of cash available to invest, but
they can develop an investment account, investing smaller sums regularly in
a unit trust.
Most unit trust funds have plans available to make it possible for smaller
investors to invest relatively small amounts monthly. It is easy and
inexpensive for an individual to acquire units through deposits of RM100 or
more a month in a unit trust fund.
Fund Administration - The Convenient Factor
Few people have the experience, time or facility to properly set up an
investment programme, much less to supervise it constantly. Unit trust
managers have emerged as professional organisation devoted to solving the
investment problems of people from all walks of life.
Unit trusts relieve their investors of the need to handle their own
securities transactions. Investors in unit trust funds are not obliged to
concern themselves with matters such as,
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Obtaining quotations on securities being bought
and sold
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Delivery and payment for the securities involved
in each transaction
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Safekeeping of cash and securities
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Accounting and bookkeeping procedures, etc
Investors of unit trust funds will receive semi annual and annual reports
which describe:
a. The portfolio of the funds
b. Investment changes made in the period
c. Distributions paid, if any
d. Fund manager's opinion on the economic and market outlook
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