Wednesday, June 10, 2009

STI: Er, what is a unit trust?

June 7, 2009


Er, what is a unit trust?

Where do you see this?

In investment articles and market reports.

What does it mean

A unit trust is an investment tool that can be likened to a basket of stocks.

When you and other investors buy units in a unit trust, you are buying a portion of what is in the basket.

The fund is invested in many different stocks, to meet investment goals based on the fund's objectives and guidelines.

Unit trusts often have a sales charge and an annual management fee.

Why is it important?

It is a good investment tool to diversify your investments. However, some funds are considered risky because they are sector- or country-specific, and so less diversified than say, global funds.

Generally, it is less risky to invest via a unit trust than directly in individual stocks.

This is because if the unit trust contains the stock of one firm that goes belly up, it will affect the fund's value only in a small way.

On the other hand, if you had invested money in shares of that firm, you could lose your entire investment.

So you want to use the term? Just say...

'Unit trusts or shares? Given how my risk appetite is small, my financial adviser thinks I should opt for the former.'

Lorna Tan

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