Lesson 7 - How To Select Unit Trust Funds?
There are many unit trusts funds from which to choose, but having considered the type of fund or funds most likely to meet your needs, you have already narrowed down your choices considerably. The next logical step is to decide which unit trust fund to invest in.
A random check will confirm what most, if not all, investors would look at the performance or investment results. Unfortunately, it is impossible to predict a unit trust’s future investment performance. This will depend on the type of fund, the general market trends and the investments which a fund manager picks.
Most funds would provide past performance tables that normally show the total returns since inception or how much an initial investment made several years ago would be worth today with any income reinvested.
You may look at the performance of the funds but do not pay too much attention to period of a year or less as external factors beyond the control of the management companies may have influenced results. Ideally, a fund should be able to show consistent performance over a long period. Check the performance of a company’s other funds to make sure that it was not just luck with one fund. However, be warned that past performance figures are no guarantee of the future. A fund that has performed well in the past may not do so in the future and vice versa. Go to Fund Performance for fund comparisons.
Finally, do not let another type of fund take your fancy simply because it produced better results than the one you had initially chosen. The fund may be more risky and may not meet your requirements.
Do’s and Don’ts of Choosing a Unit Trust Fund
Do
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Decide which type of unit trust fund meets your saving needs.
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Shop around for a reliable unit trust company.
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Check whether investment limits and frequency of income payments are suitable.
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Check past performance records.
Don’t
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Don’t choose any unit trust fund just because its performance was good. Instead, make sure the fund meets your risk appetite and financial goals.
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Don’t pay too much attention to short term performance as good consistent performance over all periods is the best lead.
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Don’t decide on a unit trust fund simply because it has low charges. Strong management of the fund is far more important.
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Don’t borrow to invest in unit trust unless you are absolutely aware of the risks involved.
