What is Unit Trust

Unit Trust is a collective investment scheme that pools the savings of a large number of investors. The money collected is invested by the fund manager in different types of stocks, bonds, or other securities in various proportions depending upon the objective of the fund.

The income earned through these investments and the capital appreciation realized by the scheme, after deducting the trading costs and expenses of managing and administering the fund are paid out to the unit holders in proportion to the number of units owned by them.

Most of the unit trust funds in Malaysia are open-ended funds (the fund sells as many units as you and other investors want to buy and buys as many units you want to sell). This makes unit trust funds very liquid investments – though the price at which you sell may be less than your purchase price if the value of the fund has dropped.

You can make an initial investment with as little as RM1,000 and buy additional units when you have more money or invest a fixed amount on a regular monthly schedule via a bank account. Thus unit trust is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio. Each Fund has a defined investment objective and strategy.

How do you measure profit?

A unit trust fund will make money from two aspects:
by earning dividends (from stocks) or interest (from cash/bonds) and
by selling investments (stocks) that have increased in price and bond maturities.

The fund may distribute or pay out its profits to you and its other investors according to the fund’s declared distribution policy. Some funds’ policy is to pay out earnings yearly, some will pay out half-yearly. Some funds specify that it does not intend to pay out the profits but let the gains accumulate in the NAV.

Payouts when done, is usually carried out in two ways:
by way of income distributions. When an income distribution is made you will receive money from the fund. However, you could elect for this money distributed to be reinvested for more units. Following an income distribution, the NAV of the fund decreases.
by way of unit splits. The investors’ total number of units in the fund increases but the total NAV remains the same.

As a unit trust investor, you have made profits IF your REDEMPTION value i.e. total number of units X NAV is higher than the amount of your Initial Investment.