What Is Unit Trust

Unit Trusts is also known as mutual fund in the United States. It is a collective investment instrument which allow investors with similar investment objective to pool their money into a fund. The fund manager will use the fund to invest into portfolio assets like equity, bond, money market and other securities. Unit trust fund consists of 3 parties. The unit holder, fund manager, and trustee. The return on investment in the form of distribution and capital appreciation.

The role of the fund manager is to implement fund investment strategy and managing its portfolio activities.

A trustee usually is a company safeguard the asset of the fund. The role of the Trustees are assigned to ensure that the fund manage runs the fund following the fund’s investment objectives.

Unit holder is the investors who invest into the fund. They hold the rights to the trust’s assets.

The investor will get distribution from the fund account that he invested base on the number of units. Not every fund is compulsory to declare distribution. Some of the fund declare distribution incidentally and some compulsory. All these subject to the respective fund characteristic. Investor require to check back the investment prospectus or investment approved material to understand the fund distribution rule.

If the fund has distribution, the investor can either choose to pay out or can choose to reinvest back to the fund. Generally speaking, reinvest back will not cause any sales charge to be imposed on distribution reinvestments.

As for pay out distribution can be one of the useful method to fund for regular retirement expenses. Investor can initially choose to reinvest the distribution in the early stage of his age as part of the retirement plan. When come to retirement age, the investor can change the option to pay out distribution for funding his retirement expenses and keeping the capital intact. I will share more on retirement planning in another separated article.

Capital appreciation is also known as capital gain. It is an increase value of an investment between the purchase price and the current market price or selling price.

When the purchase price has been increased to the current market price also known as Net Asset Value (NAV) in unit trust. If the investor has not selling off the invested units, that gain is known as paper gain.

When the purchase price has been increased and the investor has disposed the units or selling off the units with the higher selling price. That gain is known as realised gain.