Unit Trusts in Singapore: What you need to know about them for 2019
The financial environment in Singapore is flush with investment options. Among them, there are Unit Trusts, which are elsewhere known as Mutual Funds. Unit trusts in Singapore are in huge supply. That means you can get access to the investment vehicles easily.
Usually, before making any investment decision, it is always useful to understand the asset. Particularly, this entails the risks involved and even the gains forgone to achieve an income. Further, the understanding will help towards picking the best plan available.
However, before making the step towards understanding what unit trusts are, you should first understand yourself. Here, you will be able to understand what kind of investor you are. Why is this important?
Unit trusts are high risk investments. You will simply be putting your capital at risk by buying into fund managers.
Further, understanding yourself will help you to know if you really need to invest in unit trusts. This is because such investments are ideal for super-busy people who cannot manage their own portfolios.
What are unit trusts?
Unit trusts consist of pools of money gathered from various investors which are then invested in a range of products. Normally, a fund manager may decide to invest in bonds or equity. As a result, you will find bond funds and equity funds respectively.
Investing in unit trusts has a range of benefits. Firstly, the unit trusts have professional fund managers who understand the market very well. Therefore, there is a high chance that you make a good profit out of the investment.
Secondly, unit trusts expose you different markets both in geography and offering. Also, there is a guarantee of constant income from the investments.
Interestingly, unit trusts earn income according to the level of risks that the funds are exposed to. If a fund invests in high risk products, you will earn quite high if the numbers are positive. Low risk funds guarantee constant income but quite comparatively low.
What you need to know about Unit Trusts in Singapore for 2019
In finance, the past always informs the future. This is especially true in markets that earn better returns in long-term investment models. Therefore, we shall have a look at how the unit trusts performed in 2018 and other key issues.
Usually, investment vehicles have specific aspects that one looks out for to determine their profitability. These are the things you need to know before making that decision to buy. For instance, it is important to have an idea of how the various major funds available performed. Also, if they pay dividends, how much they pay. Other aspects include the fees that you part with.
Fees and how they affect earnings
It is important to understand how much it costs to access certain funds. Further, it will be prudent to know how much the fees affect your earnings.
Particularly, all unit trusts have fees associated with specific aspects of the assets. However, the size of the fees and how they are structured affect how much income you end up earning.
This year experienced a lot of financial turmoil, especially in international market. Considering that Singapore is intricately a part of the global financial system, the turmoil can reach us.
Normally, whenever such issues arise, funds are likely to increase their management fees. This goes for other fees so that they can cover the risks of investments going sour.
To get a good grasp at the performance of the unit trusts, we shall consider one fund that is popular in Singapore. UOB United SGD Fund Class A SGD Acc ranks among the ten best performing funds in the Asia region.
Particularly, the fund focuses on the Singapore money markets. According to Morning Star, the fund invests in short term interest bearing debt instruments. Also, it invests in bank deposits where it aims to achieve a yield enhancement over Singapore dollar deposits.
Looking at the fund’s performance the last three years, the trend is positive. However, the last few months have seen the fund post negative trailing returns. In particular, the fund posted -0.38% year-to-date returns as at November 20 2018.
Interestingly, the trend looks like the returns could go further south in the coming year. However, the returns will also heavily rely on how the companies whose stock it owns will perform.
The table below represents a snapshot of the fund’s performance.
Looking at the example above, it is apparent that investors in unit trusts should look out for certain indicators. First, they should look at the performance of the companies whose stock the funds own. In particular, the performance of the stocks heavily affects the return on the funds’ investments.
Like earlier mentioned, equity funds are high risk investments. As the business space falters, the risks heighten. Therefore, investors in equity funds should know the kind of equities the funds are investing in to gauge risk.
Also, we know that you cannot find unit trusts on Singapore Exchange Limited (SGX). However, this is not to say that there are immune to investor sentiment. Interestingly, the companies that offer the unit trusts affect the sentiment investors have on the funds.
In particular, if the DBS Bank performed poorly for this year, this would affect DBS Unit Trust fund. Specifically, investors tie the performance of the funds to their parent companies. This arises from the psychological significance in the name of the fund and the parent company. Therefore, it is important to know about the parent companies, if any and how they are performing.
Further, unit trusts are as competent as the fund managers doing the actual work of choosing the assets. This is to say that if a manager does not have a good track record, he/she is unlikely to attract investors. Therefore, you should enquire about the manager and seek specific information regarding certain aspects.
The aspects include professional qualification, their risk appetite and if they are able to beat the market. This implies that you will have to do some really heavy lifting in terms of background checks.