Unit trusts and mutual funds are investment pools that are meant to assist investors to diversify their portfolios and grow their wealth. One of the benefits of unit trust investment is that investors gain experience investing in global stocks such as those from the United States, China, and other nations. In Malaysia, traders who trade stocks directly must open a Central Depository System (CDS) account as a first step in the investment process. Unlike unit trust investments, where investors do not need a CDS account to begin investing in local or global equities, unit trust investments do not require investors to have a CDS account. The Securities Commission Malaysia (SC) is responsible for releasing the Shariah status for this sector biannually in Malaysia.
What Is Unit Trust?
Technically, unit trust investments are not the same as stock investments. A unit trust is a type of investment in which money is pooled from a group of investors with similar financial goals, risk tolerance, and investing strategy. Professional organisations that manage the allocated fund will subsequently invest the pooled investors' money in a variety of portfolios. Investing in multiple investment portfolios has the goal of reducing investment risks. One of the advantages of investing in unit trusts is that if one of the portfolios loses money, the losses may be recovered by other portfolios that make money. As a result, it may be stated that this sort of investment minimizes losses. Independent trustees will then be appointed to administer and monitor the depositors' funds. Unit trust is also recognized as an open-end fund where the unit holders can resell and buy the units anytime through a selected fund management company at the current market value.
Thing To Be Aware Of Before Investing In Unit Trust For Money Growth
1) Islamic Fund
Islamic investment in the stock market required the company to pass the requirement by SC to be listed as a Shariah-compliant company. Similar concept with Islamic unit trust fund, where the selected company to be funded from the trust fund is required to be listed as Shariah compliance company. The primary requirement that distinguishes Islamic fund management is it comply with Shariah law. The fund must be distributed and only be invested in shariah-compliant activities. Then it cannot be invested in conventional banks that offer products with fixed interest rates. Lastly, the fund invested must avoid from the company that involved alcohol, pork, tobacco, pornography, gambling, or any related activity listed by SC. As a Muslim investor, it's a necessity to find the Islamic fund to secure Muslim wealth is being managed and utilized according to Shariah-compliant. In Malaysia, listed fund management as Shariah-compliant is stated in the prospectus or easily traced through the fund name.
2) Fees
Unit trust investment utilizes expertise to manage investor pool funds. Using entities who are experts and skilled in growth investor funds are need some fees or charges to pay their services. In a unit trust, there are several types of fees charged by fund management to a joined investor. Any reasonable cost incurred in the administration of the funds may be reimbursed to fund management and the trustee. Initial costs, administration fees, transfer fees, and trustee fees are frequently incurred. Management fees are a percentage of the fund's Net Asset Value (NAV) allocated to the management fund in exchange for managing the fund's portfolio. When you go from one fund to another, you'll be charged a transfer fee. The trustee fee is a percentage of the fund's NAV that is paid to the trustee in exchange for the trustee's services. When an investor first begins investing in a unit trust, he or she will be informed of any fees or charges that may apply. Typically, standard costs range from 5% to 6.5% of the total payment. Consider investing RM500 in Fund A, which has a 5% initial fee. So the total amount invested is RM 475, with RM 25 going to fund management.
3) Period To Invest
Before investing, investors must choose how long they want to see a return on their investment. One year, five years, or maybe 10 years. Unit trusts provide a greater return over time, allowing investors to profit from growth. Most unit trust programmes offer less assurance of investment rewards in the short term than fixed deposit alternatives. As a result, if investors are looking for a short-term investment, Islamic fixed deposits are a better option. Unit trust funds, on the other hand, generate better earnings at acceptable risk levels over the medium to long term (i.e., 3-20 years). It's necessary for investors to be aware and know their investment planning and expected earnings.
4) How Profit Are Gain
The capital of the funds is not guaranteed. In some cases, an investor may lose a major portion of his or her investment. Investors in a unit trust join the pool fund by purchasing units in the fund. When the price rises above the amount paid, there is a capital gain. The price of one unit in Fund A, for example, is RM1. One unit is adjusted to RM1.50 after six months. As a result, the capital gain is defined as a 50-cent increase in the value of one unit. Dividends are paid on some funds. Dividends might be paid biannually or annually, or the profit can be distributed according to fund management's discretion. Some funds use both to disperse profits to their pooled investors.
Conclusion
As a Muslim investor, you must consider a multitude of factors in order to grow your wealth. Plan ahead of time and do some research to discover the best unit trust management and fund for your money. Before beginning to invest in unit trusts, assess the funds that follow shariah regulation, the fees that are charged, the period to invest, and how profit is distributed.