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The current low prices of most unit trust funds given the poor performance of
the Kuala Lumpur Composite Index (KLCI) have attracted many long-term investors.
With the recent launching of JF Apex Malaysia Growth Trust, there are now a total
of 78 unit trust funds in the local market for investors to choose from.
The larger menu of funds makes it problematic for investors to choose their own investments.
While experienced investors face lesser problems, "know-nothing" investors
face a mammoth task in selecting their first funds.
Basically, investors should be careful when selecting unit trust funds for their
investments. There are a few tips that investors should follow when selecting an
appropriate unit trust fund. Proper screening process helps you to achieve your investment
goals.
Self-examination is important if you want to build a solid long term investment plan.
Make sure you know what you want before making any investment plan. For example,
you must be clear about your personal investment objectives and risk temperament.
Different individuals have different needs. To illustrate, some may invest for retirement
while others for their childrenís education needs. Assume that you are clear on your
investment profile, how do you start then?
Firstly, you should assemble a list of funds and study the prospectus of various
funds carefully. Identify the stated investment objectives of the funds and see whether
they conform with your investment objectives. Review the funds' annual or interim
reports. Their actual performance may not conform with their intended objectives.
To illustrate, some growth funds which claim to invest for capital appreciation in
their prospectus, deliver more than half of their returns in the form of dividends
rather than capital gains. Investors should therefore carefully pick funds that have
historically achieved their stated investment objectives.
Note that some types of funds such as the Islamic funds which invest in syariah stocks
are not available to everyone.
Some funds focus on pure capital growth while others invest for income growth or
a combination of both. If you are a retiree, you are likely to pick an income-oriented
fund that invests for stable returns (passive approach).
If you are relatively young and single, you are more willing to take on some market
risks. In this case, growth funds will top your funds list (active approach). Conservative
investors who prefer a combination of growth and income would prefer balanced funds.
Investors should remember that high returns come with high risks, a fair trade-off.
Thus if you are investing in a fund which focus on second board stocks, while may
provide greater growth, the risks involved is always higher.
The smaller nature of second board companies generally provide greater volatility
as compared to blue chips on the main board.
Study the investment strategy and asset allocation of the funds to support your decision-making.
Obviously, you will not prefer a growth fund that invests mainly in fixed income
instruments during a raging bull market and distributes more dividends than capital
gains. Remember that asset allocation contributes significantly to the overall returns
of the investment portfolios.
Secondly, there is no free lunch in the investing world. Investment managers are
paid handsomely to look after your investments. Know the overall fee structures -
the relevant charges and fees in the buying and selling of units of various funds.
If you are investing in foreign funds for diversification, you will notice that the
fee structures could vary significantly from local funds. Remember also that expensive
funds do not necessarily provide greater returns and some could even lag behind their
cheaper funds.
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