By: Tan Kin Lian
Dear Mr. Tan,
Is unit trust a complicated product? Do you recommend investing in a unit trust?
REPLY
A unit trust is generally a simple product. Your money goes into a fund which is invested on behalf of all the investors. The fund manager has to disclose the following:
a) Upfront spread
b) Expense ratio (i.e. the annual charge)
c) Scope of investment.
It is best to invest in a unit trust that has no spread, i.e. the same price is used for buying and selling of each unit, or a spread of not more than 1%. You should choose a fund with low expense ratio, less than 1% per annum.
If you select a unit trust that has a high spread and expense ratio, you have to be sure that the fund manager is able to produce a better return compared to the market. Usually, it is difficult to make this judgement. Read more...