unit trusts... can trust?
Why should one buy a unit trust?
1 - Professional management
2 - Diversification of risks(depending on which fund you invest into)
3 - No active monitoring needed/ convenience
4 - Liquidity
5 - Low capital requirement
6 - Access to foreign markets
7 - Hedge against inflation
These benefits would look enticing to the layman as little effort on their part is required. One can invest into unit trusts by way of
fundsupermart (and also some other sites like
dollardex..) or just by setting up a CPF investment account to invest your CFP monies. An individual seeking to invest with a small capital would be able achieve risk diversification in unit trusts than to invest in individual stocks with a large capital outlay to achive the same level of diversification. A busy investor might not able to fork out the time to monitor individual stocks, therefore by investing into these mutual funds, he is able to delegate this job to the professional fund managers.
However having said all this, one must also remember that unit trusts come with charges. There is no free lunch in this world. You want the services of the so-called professional fund mangers, you better jolly well pay for it. An investor should take the time to go through the charges of the fund, e.g front-end fees, switching fees, redemption fees, management fees and so on. Sometimes the expense ratio of the fund might just eat into any profits you might have.
I have always have a distaste for unit trusts. Why should i let somebody manage my money for me? Fund managers will still earn their salaries no matter how good or bad their fund is performing. They usually get bonuses for beating the market and prehaps nothing more than a slap on the wrist for the opposite. In order to earn more bonuses, they will be tempted once and time again to beat the market by buying foolishly. Yes.. they will start to speculate. Why should an investor let somebody speculate his money away?
We have all seen the emerging markets funds, china/india funds, korea funds and so on.. let's use the china/india fund as an example. There are 2 companies that manages their own china/india fund, the chances are that the 2 fund managers (assuming that they have the same level of expertise) from their respective companies will be buying the same stocks for their china/india fund. How differently composed will the fund be from other fund houses? This is akin to the 'herding effect' where all the sheep start to move in the similar direction directed by the shephard. The fund managers will all be buying into more or less similar stocks like the other have been buying and this will cause the stocks to be grossly over-valued. As time goes by when the stock price corrects itself, investors will start to see the drop. I liken unit trusts to lemmings who flung themselves over the cliff in a herd.
Funds can also be either close-ended or open-ended. For close-ended funds, they will be closed to the investment public once a certain time/limit is reached and vice versa for open-ended funds. With open-ended funds, money from investors will always be pouring in and the question is that what if a rumour sparked a mass public buying of the fund? With the huge influx of money in the fund manager's hands, he can either 1) buy into the good stocks he already has (thus over-valueing them) or 2) buy into other stocks that he would never had thought of buying in the first place. Either way, they are detrimental to the fund's performance. With close-ended funds, the fund manager will only have that limited pool of money to move around with and the speculation risk is reduced. He can buy into good stocks by selling under-performing stocks, doesn't that sounds better?
For me as a value investor, i would rather buy into a index fund than a unit trust. An index fund manager is restricted only to the stocks of that particular index, and thus the speculative risk is lessened. Therefore the performance of the index fund is pegged to the index and over the long term, the returns although small, will move upwards. A close-ended index fund would be best.
In short, a value investor goes for long term gains, not speculative short term gains.
some fun stuff
I'm pleasantly surprised.
Very Well-Rounded
You have:
70% SCIENTIFIC INTUITION and
62% EMOTIONAL INTUITION
The graph on the left represents your place in Intuition 2-Space. As you can see, you scored above average on emotional intuition and above average on scientific intuition. (Weirdly, your emotional and scientific intuitions are equally strong.)
Your Emotional Intuition score is a measure of how well you understand people, especially their unspoken needs and sympathies. A high score score usually indicates social grace and persuasiveness. A low score usually means you're good at Quake.
Your Scientific Intuition score tells you how in tune you are with the world around you; how well you understand your physical and intellectual environment. People with high scores here are apt to succeed in business and, of course, the sciences.
have fun people, with this
test. Take it with a pinch of salt.
