Thursday, 22 October 2020

Should You Invest In Unit Trust?

After I started my working life, my first investment was unit trust.

Unit trust or mutual fund is a pool of money collected from individual investors and managed by fund managers, who invest the fund in various investment vehicles either locally or/and abroad.

I didn't have any idea regarding financial planning and investment until I graduated from university in 2004.

While waiting for employment, I read a book "Financial Freedom" published by Public Mutual (formerly KL Mutual) and there was no surprise that I bought unit trust first.

There was also no surprise that my first unit trust was bought from Public Mutual.

I got the agent's contact number from my mom. However, that person was no more a unit trust agent. She gave me another agent's contact.

So I bought my first unit trust which was Public Ittikal Fund in the middle of year 2004. I remembered that the agent confidently recommended it to me without giving me other choice.

As a newbie, I just followed his advice and that fund performed quite well.

Then, whenever a new fund was launched, the agent would contact me. I ended up buying those newly launched Public Mutual funds which were Public Focus Select Fund (25/11/2004), Public Dividend Select Fund (3/5/2005), Public Islamic Opportunity Fund (28/6/2005) & Public Far East Select Fund (22/11/2005).

It seems like I have a lot of money buying 5 unit trusts in a year, actually it's not. How much savings could you expect from a person who earned slightly over RM2000 a month? 

I just allocated a little bit for each fund. If not mistaken, the minimum initial investment was RM1000. I did dollar cost averaging of RM100 per month for each of them. It's a forced saving of RM500 per month.

I learned that in average, unit trust could give me a return of 8% per year, much higher than FD rate of 3%.

Starting from year 2006, I started to invest directly in stock market and that's the time I stopped buying any new unit trust until in year 2009, I bought Public Smallcap Fund to support a friend who was an agent. 

However, my regular investment through dollar cost averaging continued.

I started to sell my unit trust in year 2010 after holding them for at least 6 years. 

The first unit trust I sold was PFES after holding it for 6 years, the return was 71% which was not bad at all.

In Aug 2013, finally I sold my first ever investment which was the Ittikal Fund. The return was 143% over 9 years which was also good.

Overall I sold off 4 unit trusts to pay for property & car down payment as well as house renovation expenses.

Now I only hold 2 unit trusts which are PDSF and PSmallCap. I still continue the dollar cost averaging and plan to hold for longer term.

I never track the price of my investment in unit trust and also do not care about how much dividends are distributed. Those dividends are reinvested into the fund.

When I check the distribution today I'm a bit shock to see this:

The dividend of Public SmallCap Fund dropped 60% YoY in 2019 from 5sen to 2sen, and this year it's only 1 sen. Is it a dilution or what? I'm not too sure.

If the fund was reopened to take in more units, then it's like a massive "private placement" that dilute the dividends of existing unit holders.

Similarly for PDSF, the distribution dropped suddenly since 2014. This doesn't look good to me.

Personally I will not invest more in unit trust besides the dollar cost averaging, as I find that buying individual stocks can potentially give me better return.

Nevertheless, I'm not in a position to tell you whether you should invest in unit trust or not. We have different risk appetite, time frame, cash etc.

Unit trust is still a good investment for those who do not have time and energy to invest directly in stock market but still wish to participate in it.

It's better than fixed deposit in medium to long term. In short term, you might still lose money if you buy before a market crash or major correction.

Similar to stocks, there are low risk, medium risk and high risk unit trusts. Low risk funds usually invest more into money market, bonds and blue chip stocks while high risk funds invest more into small cap growth stocks.

The similar rule applies: the higher the risk, the higher the potential return.

Of course investors need to pay a fee to the professionals who help to manage the funds. For Public Mutual the service charge is 4.5%.

There are many many investment banks which offer different types of unit trusts. If you wish to invest in one, you can check the past performance of those funds.

There are also some companies which rate the performance of various unit trusts such as Lipper & Morningstar. I used to see those ratings long ago in news and articles but I've never seen it for many years.

Investors can do dollar cost averaging when investing in unit trust, which means invest a fixed amount of money at regular interval (eg monthly) to reduce the impact of volatility. 

When the price is high, you will buy less units and when the price is low, you will buy more units. It is also a good way of force-saving when it's done through standing instruction from bank saving account.

I'm not sure whether unit trust is still as popular as last time when there seems to be lots of unit trust agents. 

Perhaps many investors are into newer ETF (Exchanged-Traded Fund) & Robo Advisor?


  1. I also invest in Unit Trust but only using the money from EPF account. I do not use my cash money because, as u said, investing directly in stock market can get better return.
    The return from Unit Trust fund in local market (i.e. Bursa) has generally not satisfactory in past 5 years. This can be seen from the 5-year annualized return of most of the Bursa funds. If the return is <6% per year, i would think it is not worth to take out money from EPF account to invest in Unit Trust bcos EPF can give close to 6% annualised return.

    The last two times i took out money from EPF account and invested into Public Mutual fund were in Apr'20 and July'20 when i think stock price was low. I also switched all the bond funds into equity fund in Apr'20. My strategy is to switch bond to equity when market was bad and vice versa when market recovers. I do so with only the money in my EPF account with the hope to grow my pension fund.

    1. I find both of us have quite a lot of similarities in term of investment :)
      Yes, EPF pays good dividend and will be my "unit trust". I've withdrawn once from my EPF for housing loan but won't withdraw again.

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    3. Yes, we do have a lot of similarities :)

  2. I've invested in Unit Trust too but after 5 years, it lost money. Ended up selling it for my wedding preparation. There's too if you wanna buy unit trust online. I think the yearly fee is much much lower than buying from an agent.

    1. James, thanks for your recommendation. Have you looked into robo advisor? I think the fee is lower.