People who are looking for good, reliable ways to invest their hard-earned money will often be met with a wide array of choices. While variety can be a good thing, it can also be confusing particularly to those who have very little experience on investing. One of the most popular types of investments is the unit trust, an option that's currently available only to a limited number of countries. Is this the right investment for you' Here are tips on understanding unit trusts and how to select the best to invest on:
A unit trust is a kind of pooled investment. This type of investment is open-ended, in that the number of units investors have is not fixed -- they can sell some or buy more, depending on how well they think the shares are performing. Although unit trusts offer a relatively low risk, they also have certain pitfalls and limitations that you need to understand. Here are tips on how to select the best to invest on:
Know your investment goals and risk profile
Just because unit trusts are low-risk investments does not mean you can simply select a few and forget about them. This is a common misconception for which you could pay a high price.
In general, there are two categories of unit trusts: growth funds and income funds. Growth funds are considered more aggressive and offer higher returns. These include gold funds, commodity funds and index funds. Growth funds are excellent for people who are looking to save for the next 10, 15 or more years because these offer higher returns.<
Income funds, on the other hand, are designed to offer a more or less consistent return to investors. These include money market funds, bond funds and equity income funds. Income funds are a good option for people who are close to retiring or prefer a more stable or predictable source of income.
Before investing in either one, consider your age, preferred return on investment and your aversion to risks.
Invest only with experienced and reliable fund managers
Choose your fund manager or broker carefully and make sure they understand your needs. Compare the services of at least 3 major managers and compare their offers. Remember that you will not only be paying for the funds, you will also be paying for the expertise of your broker. Know their track record, qualification and background in stock brokering and investment research.
Invest what you can afford
Assess the expense ratio of the unit trust fund you're considering against your current income. Most of these funds will require you to pay annual fees. You may also be charged a registration and even an exit fee.
