Investing in a unit trust fund enables the investors to enjoy the benefits and advantage of diversifying their investment and assets. All investments carry risks and investing in unit trust funds is not an exception. The value of the unit trust fund’s underlying investments changes from day to day, which in turn affects the value of the unit trust fund. As a result of the changing value of the underlying investments, the value of your investment in a unit trust fund can go up or down over time.
By investing in a unit trust fund, investors are able to benefit from the expertise of professional investment managers who in turn are able to draw upon specialised research, market information and the expertise of a variety of third party investment analyst whose services would not normally be available to individual investors.
Due to the large pool of funds available, a unit trust fund has more financial muscle compared to a direct investment in the stock market by an individual investor as he is therefore able to diversify more effectively (i.e. investments could be spread out more widely amongst a broad spectrum of securities than would have otherwise been available to an individual). This broad exposure helps spread and reduce risk. Minimisation of risk is achieved by investing in different types of asset classes, securities or sectors so that losses in one asset class or some securities or sectors will probably be offset by gains in other stocks.
Liquidity risks refer to the ease of liquidating an asset depending on the asset’s volume traded in the market. If the fund hold assets that are illiquid, or are difficult to dispose of, the value of the fund will be negatively affected when it has to sell such assets at unfavourable prices.
This is the risk that the manager does not adhere to relevant laws, regulations and guidelines that govern the investment management and operations of a fund or a fund’s investment mandate stated in the deed. Non compliance could occur due to internal factors such as weaknesses in operational processes and systems. Non-compliance risk may adversely affect the investment of the fund. The manager may force sell the investments of the fund at a discount to rectify the non-compliance. This risk is mitigated by having sufficient internal controls in place and compliance monitoring program.
The risk occurs when investors take a loan/financing to finance their investment and thereafter unable to service the loan repayments. If units are used as collateral, an investor may be required to top-up the investor’s existing instalment if the prices of units fall below a certain level due to market conditions. Failing which, the units may be sold at a lower net asset value per unit as compared to the net asset value per unit at the point of purchase towards settling the loan.
