For novice investors who wish to invest in unit trust @ mutual fund, there are a few factors which you should consider or at least aware of before you purchase your first unit trust fund. Based on my experience, I listed down below, 7 important factors you should consider before purchasing your first unit trust fund:
1) Investment objectives
The question is why you want to invest? For most of us, we invest because we want to make more money. The answer is not specific enough. To be successful in unit trust investing, you need to identify the objectives of your investment. Some refer this as investment goals. Your objectives or goals can be to prepare your downpayment for your dream home, to prepare education funds for your kids, to fund for your retirement or simply want to increase your net worth. Once you've set up your investment goals, it's much easier to walk down the investment road. This will also help you to identify the right funds for your. Your investment objectives and the fund's investment objectives should match.
2) Risk profile
Are you a high risk taker? Or you prefer to play safe? Different investor has different risk level. Make sure you know your personal risk level and are comfortable with the risk level of the desired funds. You must also aware that high risk funds provide higher return compared to low risk funds and vice-versa.
3) Time horizon for your investment
This is your age. It is one of the most important factors in successful unit trust investing. The longer your time horizon, the more benefits unit trust can bring for you. Because the younger you are, the more time for compounded interest to do their magic work. Younger investors also willing to take higher risk compared to matured investors. In other words, time is money.
4) Your affordability
How much you can afford for your unit trust investment? I would advise you to try with a minimum amount of investment first. As the time goes by, monitor your investment and learn more on unit trust investing. When you are more comfortable, then you can top-up the investment or invest in different funds or even different unit trust companies.
5) Fees and charges involved
Unit trusts funds are managed by a group of professional fund managers. They help unit trust investors to find ways to make more money by monitoring different stock markets. That's why there are fees and charges involved in unit trust investment. For example, for my Public Mutual- Public Divided Select Fund, the service charges range between 5%-7% of Net Asset Value (NAV) per unit and the management fee is 1.5% per annum of the NAV. Depending on the type of funds, there might be additional fees and charges involved. Read the factsheet clearly before starting your investment.
6) Investment amount are extra cash
You must also remember that the $$$ you invested in unit trust are extra cash which you will not need in near future (1-5 years). This is because in most cases, you will only see the return of investment after certain period of time. If you think you will need the $$$ in near future, unit trust is not the right place for you $$$. You must ensure that you have got your emergency savings ready, before starting your investment. This is to prevent the situation where you invested RM10K in Jan'08, then in July'08 you realised you need the RM10K for the downpayment of your new home. Depending on market price, the investment value at July'08 might be lower than RM10K.
7) Get a reliable unit trust consultant
If you walk-in to any unit trust companies, normally they will assign you with a unit trust consultant. If you are not satisfied with the service provided, you are free to request for a different unit trust consultants. Make sure your unit trust consultants will be able to provide investment advice based on your needs and not their needs. Try to prevent to deal with unit trust consultants who merely look for the sales commission from your investment.
I hope my sharing above will benefits those who wish to start their unit trust investment. I am still learning and there are more things to be learned from unit trust investment which I will cover in my coming posts. Always remember - Investment involves RISK. Happy Investing & Happy Winter Festival!