Jean’s

Ok. Here come another common misconception of Unit Trust Investments, or perhaps I can say a commonly used selling line of fellow consultants – ‘invest in this fund because it is distributing dividend by month end’.

In fact, I just met up with a potential Public Mutual Gold investor whom is well pleased with his existing consultant mainly because the consultant offers the service of advising him on which fund to invest in based on the dividend distributing timing. I must mention that this investor’s investment objective is to withdraw the dividend as his pocket money.

So, is this a good idea?  

Well, it surely is a good selling line - “Hey, you put in RM 10k today, you will make RM1k from dividend distribution (assuming a 10% distribution declared) by month end. “ Sound great!

But the point is, is it financially beneficial to the investors by advising them to invest into a fund just days before the distribution declared? 

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Often we hear investors favoring one fund over the other simply because of its cheaper price. They think that a cheaper fund has a greater potential for capital appreciation.

Unfortunately, this is a misconception.

One should not confuse its actual value based only on the price of shares and unit trust.  For shares investment, the price of a particular share may reflect it value, especially when considering certain other factors like its PE ratio, etc. For e.g., for Genting shares, investing at RM 5 is of better value than at RM 8.  However, for unit trust investment, the price of a unit trust at a particular time does not indicate relative value in the same way as stocks.

Perhaps we should start off with looking at how the price of a unit trust is derived. The price of a unit trust is normally known as NAV (Net Asset Value). Technically speaking, it is defined as the market value of the unit trust’s total assets, minus liability/expenses, and divided by the number of units issued. We can see how NAV is calculated using a simple example: -

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I was reading a fellow blogger’s concern on his falling unit trust investment value.

I can understand how disappointed he would have felt.

Last year, while the market was vibrant and at her all time high, was a great year for investments. Due to most bourses hitting all time highs, unit trust companies delivered very good results which boosted the excitement levels of investors. Many investors may have made quick money from unit trust investments last year. The side effect? - a great level of optimism brings forth a greater level of disappointment.

More so, such optimism and excitement has caused many investors to lose sight on the underlying principal of unit trust investments.

So, why not stay calm and re-look the objective of us choosing unit trust investment in the first place: - (more…)