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7 Factors to Consider Before Investing in Unit Trust

3 stacks of growing coins show example of unit trust investing.

In this post, I will be sharing factors to consider before investing in the unit trust.

This post is especially for novice investors who wish to invest in a unit trust or mutual fund. There are a few factors which you should consider or at least be aware of before you purchase your first unit trust fund.

Table of Contents

7 Factors to consider before investing in the unit trust

Based on my experience, I listed down below, 7 important factors you should consider before purchasing your first unit trust fund:

1. Investment objectives

Firstly, among the main factor to consider before investing in a unit trust is the objectives of the investment.

The big question is why you want to invest.

For most of us, we invest because we want to make more money. The answer is not specific enough. To be successful in unit trust investing, you need to identify the objectives of your investment.

Some refer to this as investment goals. Your objectives or goals can be to prepare your downpayment for your dream home, to prepare education funds for your kids, to fund for your retirement or simply want to increase your net worth.

Once you’ve set up your investment goals, it’s much easier to walk down the investment road. This will also help you to identify the right funds for you.

Your investment objectives and the fund’s investment objectives should match.

2. Risk profile

Are you a high-risk taker? Or do you prefer to play safe?

A different investor has a different risk level. Make sure you know your personal risk level and are comfortable with the risk level of the desired funds.

Besides, you must also be aware that high-risk funds might provide a higher return compared to low-risk funds and vice-versa.

So, understanding your risk appetite is also a factor to consider before investing in the unit trust.

3. The time horizon for your investment

Next would be the time horizon that you have for your investment. This is also known as your age.

It is one of the most important factors in successful unit trust investing. The longer your time horizon, the more benefits unit trust can bring for you. Because the younger you are, the more time for compounded interest to do their magic work.

Moreover, younger investors are also willing to take higher risks compared to experienced investors.

In other words, time is money.

4. Your affordability

How much you can afford for your unit trust investment? This is also a factor to consider before investing in a unit trust.

I would advise you to try with a minimum amount of investment first. As time goes by, monitor your investment and learn more about unit trust investing.

When you are more comfortable, then you can top-up the investment or invest in different funds or even different unit trust companies.

5. Fees and charges involved

Unit trusts funds are managed by a group of professional fund managers. They help unit trust investors to find ways to make more money by monitoring different stock markets.

That’s why there are fees and charges involved in unit trust investment.

For example, for my Public Mutual Public Divided Select Fund, the service charges range between 5% to 7% of Net Asset Value (NAV) per unit and the management fee is 1.5% per annum of the NAV.

Depending on the type of funds, there might be additional fees and charges involved.

Therefore, read the fact sheet clearly before starting your investment.

6. The investment amount is extra cash

You must also remember that the money you invested in a unit trust is extra cash. Which you will not need in the near future.

This is because in most cases, you will only see the return of investment after a certain period of time. If you think you will need the money in the near future, a unit trust is not the right place for your money.

You must ensure that you have got your emergency savings ready, before starting your investment.

This is to prevent the situation where you invested RM10,000 in January, then in July, you realised that you need the RM10,000 for the downpayment of your new home. Depending on the market price, the investment value in July might be lower than RM10,000.

7. Get a reliable unit trust consultant

Lastly, getting a reliable unit trust consultant is another factor you should consider before investing in a unit trust.

If you walk into any unit trust company, normally they will assign you with a unit trust consultant. If you are not satisfied with the service provided, you are free to request a different unit trust consultant.

And make sure your unit trust consultants will be able to provide investment advice based on your needs and not their needs. Try to stay away from unit trust consultants who merely look for the sales commission from your investment.

I had a bad experience with some unit trust consultants. From there, I share how unit trust consultants can convince me to invest in their unit trust funds. I believe you’ll learn a thing or two there as a new investor as well.

Final thoughts

I hope my sharing above on factors you should consider before investing in the unit trust will benefit those who wish to start their unit trust investment.

I am still learning and there are more things to be learned from unit trust investment which I will cover in my coming posts.

If you’re thinking to invest in the unit trust, you might be interested to know about investing in a robo-advisor such as StashAway.

Lastly, always remember all investment involves risk. Happy Investing!

Read more: Smart unit trust investment through Dollar Cost Averaging

photo credit: wuestenigel Coin on a White Background via photopin (license)

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