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The following is an example:Many individuals deposit money in the banks, for which they receive interest. These individuals expect complete liquidity where they must be able to withdraw their deposits in cash at any time. The banks employ professional managers to look after the deposits. The deposits are invested. These managers lend the deposits to other individuals requiring funds and a host of other profit generating facilities of the banks.
Similarly, unit trust holders wish to put their money to generate higher returns. The goal of all investments is to make money more productive, either through producing income or growth. Unit trust holders have liquidity because their units can be readily converted into cash at any time. By investing in unit trusts, it allows them to engage professional fund managers at a low cost to the individual investors. These managers diversify the investible funds in many different securities (shares in stock market) and other approved channels to spread the risk.
The unit trust is constituted through a document known as a deed (contract-like) which brings together and binds the various parties to the deed:
Particular advantages of unit trusts over the pooled investments include :
Provisions in the deed under which the manager and trustee are in a fiduciary position in relation to the trust (i.e. they can only profit in ways laid down under the deed). The investor can determine in advance what costs and charges they will be required to pay to join and stay in the trust.
Email me if you wish to invest or for more info: shpoh88@gmail.com
[This posting was first published on May 1, 2008]
As for returns of mutual trust investment using our EPF saving, the annual EPF dividend is a better parameter for comparison.
Below are the graph and table of EPF dividends from 2001 to 2006. In 2007, the dividend was the highest at 5.8%.
You could notice that EPF has been paying an annual dividend of 4.25 to 5.8% since 2001. Subtracting the inflation factor, the Real Dividend Rate ranges from 1.35 to 3.6%.
What about Returns from Unit Trust Investment?
I started investing in unit trust on 10 June 2000. Every three months or so after that, thanks to Ms Demy, my Unit Trust Consultant, she would come to my office and process the EPF withdrawals and Trust Fund investments for me.
I have six funds under my portfolio by now, one of which is a bond fund. The oldest fund in my portfolio has grown more than double, 2.17 times to be exact. A check with the latest Master Prospectus of the Trust Funds, this fund has recorded an Average Annual Returns Since Launched of 29.83%, which is far much better than EPF.
Last year, EPF made a ruling that all EPF withdrawals have to be invested in local funds. Therefore, we should look at the the returns of local content funds. The four local content funds listed in the Master Prospectus show Average Annual Returns of 16.26%, 14.40%, 33.75% and 19.82%. These Average Annual Returns were based upon the returns since the funds were launched.
The various funds that I used for comparison above are equity or balanced funds which invest substantially in share markets.
Mutual fund companies in Malaysia have launched several new funds which were approved for EPF investments. There are ample funds which are open for new investors to choose from.
If you would like to have more information of EPF-approved mutual funds, kindly email shpoh88@gmail.com.
[This posting was first published on May 5, 2008}
