Types of unit trust available for investment

Types of unit trust available for investment

When investor wanted to buy into unit trust, the very first question that comes to their mind is that; "what is the main difference of each unit trust fund" and what does this different unit trust makes any difference in terms of generating investment return for the investor? Some of the main type of investment are as follow; bond fund, money market fund, equity fund and recently emerged on the market will be Islamic fund. Those laid down above are some of the major category of unit trust fund that is widely available on the market; and each and every fund display different income trend and potential return. In this article, the author will do some basic explanation and laid down the foundation of understanding on each fund for investor to gain better insight into these funds.

Let's start by explaining on bond fund, for bond fund it is purely an investment that focuses its main instrument on bond market usually government bond. For this kind of fund, investor are looking into steady stream of income but however investor need to be aware that income does not increase much as the economy grow nor it fall during economy down fall; this is usually purchase by retiree or investor who are not willing to take high investment risk and are looking for long term steady income for savings or retirement gold. However for young investor who looking to diversified their investment the bond market will be a good choice as it not only allow investor to spread their investment risk it also provide some steady income for investor who might use this income for personal savings or cover the losses from fail investment if any. Annual fund management fee is kept at lower level than any other fund as fund manager do not have to spend as much time managing the fund as other fund and thus the annual fund management fee is one of the lowest among the entire unit trust fund. Some might ask "since bond can be purchase on the market why i have to pay money for someone to buy it for me?" it is very simple, an investor exposure to the bond market might be as great as the fund manager did and thus with the fund manager always on the lookout for bond to purchase and managing the return distribution to investor that small amount of annual management fee is perhaps worth it but if investor themselves are exposed to great amount of bond then you might consider buying it yourself but again it is good to not overestimate yourself on the market.

Secondly, is the money market fund. It is widely believe that the money market fund is a conservative investment instrument which is similar of those from bond fund however the difference being that for money market fund the fund manager will invest more in short term debt securities rather than bond which are long term investment. The money market fund is suitable for investor who are looking for short term investment that is conservative while preserving the investor cash and earn a small interest based on the investment return; prices for this fund will remain stable and usually will not be less than $1 and if it is lower than the benchmark of $1 the fund is said to be "fail" but however statistically it rarely happen. Those investor who are looking only for steady income then perhaps spreading the investment to bond fund and also money market fund will be good as it allow investor to spread investment risk while gaining both long term and short term income from these funds; as for annual management fee the fee is low and is close to the fee chargeable by a bond fund.

Thirdly, is the equity fund. This fund involve the purchase of many different type of equity depending on the investment patter by fund manager set forth in the proposal or master prospectus. This type of fund comes with a greater risk than those two fund mention earlier as it involve investment in the equity market that is volatile and changes according to the economy; this type of fund is the all-time favorite for many investor who are looking for greater investment return and are willing to take risk ranging from moderate to high risk. The annual management fee is among the highest charged to investor as it involve the fund manager full attention to the market performance and the equity market to achieve its investment objective set forth; equity fund comes in a variety of format such as equity fund that aims to buy on undervalued stocks, equity fund that focus on purchase of blue chips stock and so on which is too wide to be mention. Investor that buy into this type of fund need to monitor the fund by themselves as well and not only rely on the fund manager to do so as it involve higher risk for investor to the extent of losing money.

Coming in will be the Islamic fund, this fund had arisen to the market thanks to the introduction of Islamic banking to the world. This Islamic fund is specifically targeted at the Muslim investor who wanted to make investment but is afraid that the return he or she obtains might not in compliance to the Islamic law and thus this fund offered the platform for them to invest in. Of course, non-Muslim investors also realize the opportunity of the fund and some of them will invest in the fund as well although they are not Muslim. But however investor need to understand a few point before making any investment to the Islamic fund, first of all the Islamic fund investment pattern must adhere to the Islamic law and any violation to the Islamic law is not allowed and thus it will limit the fund manager available investment option that is available on the market. secondly the risk of these fund are usually ranging from moderate to high as well as it had investment limitation that other funds do not have. Annual fund management fee chargeable is higher than the bond market as well, due to fund manager need to spend more time managing the fund and on the lookout for investment that is Islamic law compliant; Islamic fund are available in the form of Islamic equity fund which is similar to the normal equity fund but however the only difference is that the Islamic equity fund investment must be Islamic law compliant.

As a conclusion here, the unit trust fund type is wide but mainly can be categorize into the above categories where each of it have different set of characteristic as well as investment return, risk, annual fund management fee and so on. For investor to succeed in unit trust investment, studies must be done to the fund that you intend to purchase in so that the investor understand the risk involve and can make sound investment decision accordingly.

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