Unit Trust-Gettting Started

There are four major ways to start investing in unit trusts:

(1) Lump Sum Purchases

This is where an investor has a lump sum to invest into a unit trust. This may be the only investment the investor wishes to make. Over a period of time (3-20 years), the initial investment will increase as distribution and other income is earned by the fund.

When redemption or sale of the units take place, the unit-selling price will reflect the accumulation and compounding of capital over the relevant periods. It is this compounding effect over time which makes accumulation type investments, such as unit trusts, so attractive to the investor.

For example, someone who has recently inherited a sum of money may wish to invest the funds into a unit trust and hold it for an extended period to save for some specific purpose. e.g. children's education.

At the end of the holding period, the proceeds of the sale of the units will be the initial investment plus the returns on that amount, accumulated over the period.

(2) Regular Savings

Some people invest in unit trusts by making regular (e.g. monthly) contributions to their fund. This is an ideal, disciplined and useful way to accumulate capital for a future need.

By making regular contributions over a period of time, the sum accumulated at the end of the period will increase. This is commonly known as dollar cost averaging.

At the end of the period, the redemption (or sale) price of the units held will represent the accumulation of all contributions, plus returns generated from the total contributions since the first purchase was made.

The effect is more noticeable the longer the holding and contribution period. This form of savings is the basis of most pension fund accumulation e.g. the Employees Provident Fund.

(3) Investing With EPF Savings

In addition to investing in unit trust by cash or through a regular savings plan, you can also invest using EPF Members’ Investment Scheme.

(4) Borrowing

Although an investor may obtain a loan from a financial institution for the purpose of investing in unit trust funds, investors should seek appropriate advice as there are additional risks involved when using borrowings to finance an investment in unit trust funds.