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Basics of Unit Trust Investment: What We Need to Know?

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Introduction to Unit Trust in Malaysia

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Unit Trusts, also known as Mutual Funds, are a popular investment method in the Malaysian financial market. Unit Trusts have become increasingly popular among both new and experienced investors. In this introduction, we will explore what Unit Trusts are and why they are important in the Malaysian investment landscape.

1.What is Unit Trust?

A Unit Trust is a form of collective investment where individual investors pool their funds into a professionally managed fund. This fund is then used to invest in various financial instruments such as stocks, bonds, money market instruments, and real estate. Collective investments like these allow both small and large investors to enjoy benefits they might not achieve when investing individually.

Unit holders do not directly own securities in the portfolio. Ownership of the fund is divided into units of eligibility. As the fund’s value increases or decreases, the value of each unit increases or decreases accordingly. The number of units held depends on the unit purchase price at the time of investment and the amount of money invested.

Returns for unit holders are typically in the form of income distribution and capital appreciation obtained from the pool of assets supporting the Unit Trust. Each unit receives the same return, determined by the level of distribution and/or capital appreciation during any given period.

Unit Trust investors are typically individuals with savings to invest, who may not have the time or inclination to manage a direct investment portfolio or stocks. Instead, they prefer to invest in safe and reputable investment vehicles that align with their goals. Unit Trusts allow investors easy access to a variety of investments that may not typically be available to them.

When investors seek to maximize returns on their financial resources, Unit Trusts provide an ideal way for them to gain exposure to investments that, in the long run, should yield higher returns than cash savings and fixed deposits.

Of course, the potential for higher returns comes with associated risks. In the short term, the certainty of returns on most Unit Trust products is lower than that offered by fixed deposits. However, in the medium to long term (i.e., 3-20 years), Unit Trust investments generally provide better returns at an acceptable risk level.

2. Types of Funds in Unit Trust Investment

There are seven common types of funds in the Malaysian market, managed by registered Unit Trust companies regulated by the Securities Commission and Bank Negara Malaysia. A professional fund manager then invests the pooled funds in a portfolio that may include asset classes listed below:

a. Equity Funds:

Equity Unit Trusts are the most common type. Most of their assets are typically held in equities or listed company securities.

Popular in Malaysia, equity Unit Trusts expose investors to companies listed on Bursa Malaysia. Therefore, the performance of these units is linked to the performance of Bursa Malaysia. A rising market typically results in an increase in unit value, and vice versa.

There are various types of equity funds available in the market, ranging from those with higher risk and higher returns to those with lower risk and lower returns:

  • Aggressive Growth Funds: These generally invest in companies with higher capital growth potential but higher risk.
  • Index Funds: These invest in a variety of companies that closely mimic (or “track”) a specific index.
  • International Equity Funds: These primarily invest in foreign stock markets.

b. Fixed Income Funds:

These funds primarily invest in Malaysian Government Securities, corporate bonds, and money market instruments like bank acceptances and fixed deposits. The objective of fixed income funds is usually to provide stable income, with less emphasis on capital growth for investors. However, fixed income funds can generate both profit and capital loss in periods of uncertain interest rates.

c. Money Market Funds:

Money market funds operate similarly to bank accounts, with unit prices typically fixed at a set amount. Money market funds invest in low-risk money market instruments such as short-term loans to banks and other low-risk financial institutions, as well as short-term government securities.

d. Real Estate Investment Trusts (REITs):

REITs invest in real properties, typically commercial properties like offices, and provide investors with an opportunity to participate in the real estate market in a way that would be difficult for individual investors. By owning units in listed REITs, it’s possible to invest a small sum and diversify your portfolio.

e. Exchange Traded Funds (ETFs):

ETFs link unit trust funds whose investment objective is to achieve returns that are similar to a specific market index. ETFs often have low expense ratios and can be bought and sold throughout the trading day through stock brokers on the exchange.

f. Balanced Funds:

Some investors may want to have investments in all major asset classes to reduce risk from investing in a single asset class. Balanced equity funds generally have portfolios consisting of equities, fixed income securities, and cash.

g. Shariah Funds:

The primary objective of Shariah-compliant funds is to provide an alternative for investors who are sensitive to Shariah requirements. Shariah funds exclude companies involved in activities, products, or services related to conventional banking, insurance and financial services, gambling, alcoholic beverages, and non-halal food products.

3. Understanding the Risks of Investing in Unit Trusts

When we talk about investments, it’s crucial to discuss and understand the associated risks. Therefore, before making any investments, prospective investors should consider the following risk factors:

a. Market Risk:

Any purchase of securities involves an element of risk. Because Unit Trusts primarily invest in listed stocks, they may be exposed to losses due to global, regional, or national economic conditions, government policies, or political developments.

Market uncertainty and fluctuations caused by this uncertainty will affect the net asset value (NAV) of the Unit Trust, which may fall or rise, thereby altering income generated from the fund, shifting from higher-risk, higher-return funds to lower-risk, lower-return funds.

b. Liquidity Risk:

Various securities held by the fund may face liquidity risks. Liquidity risk relates to the fund’s ability to be quickly and easily traded at a fair price, entering and exiting positions.

If the fund consists of securities that have become illiquid or remain illiquid or difficult to sell, the fund manager may have to sell securities at a discount to fair value, ultimately impacting the fund’s value.

c. Management Risk:

The performance of the fund relies on the experience, expertise, knowledge, and investment techniques of the fund manager. Poor fund management can result in significant losses to the fund, thereby affecting the invested capital.

d. Inflation Risk:

Ideally, the goal of any investment is to achieve returns greater than the inflation rate. Although funds continuously strive to maximize returns and outpace inflation, they may occasionally experience losses, affecting returns.

e. Interest Rate Risk:

Fixed income securities and bonds are highly sensitive to interest rate movements. When interest rates rise, the value of fixed income and bonds falls, thus affecting the NAV of the fund. The overall interest rate environment in the country can impact the investment’s value even if the fund (e.g., Shariah Fund) does not invest in interest-bearing instruments.

Illustration of investment

4. Advantages of Unit Trust

a. Diversification of Investments:
Unit Trusts allow investors access to a diversified and multi-asset portfolio, reducing risk since funds are invested in various instruments.

b. Professional Management:
Unit Trusts are managed by professional fund managers with in-depth knowledge of the financial market. They make investment decisions based on thorough analysis and research.

c. Small-Scale Investing:
You can start investing in Unit Trusts with a relatively small amount of money, making it more accessible to individual investors.

d. Liquidity:
Unit Trusts typically allow investors to deposit and withdraw their funds quickly, offering high flexibility.

f.Overall Performance:
Investment decisions in Unit Trusts are measured by the overall performance of the fund, reflecting the combined performance of all investments within it.

5. How to Start Investing in Unit Trusts:

There are three main ways to begin investing in Unit Trusts:

a. Lump-sum Purchase:

This method involves investors with a significant amount of money investing in Unit Trusts. It may be a one-time investment. Over the holding period (3-20 years), the initial investment will increase as distributions and other income generated by the fund accumulate.

When unit redemption or sale occurs, the unit’s sale price will reflect the accumulation and compounding of capital during the relevant period. It’s the compounding effect over time that makes accumulation-type investments, such as Unit Trusts, attractive to investors.

For example, someone who inherits a substantial sum may want to invest it in Unit Trusts and hold it for the long term to save for specific purposes, such as a child’s education. At the end of the holding period, the proceeds from the unit sale will be the initial investment plus returns earned on that amount, accumulated over the period.

b. Regular Savings:

Some individuals invest in Unit Trusts by making regular contributions (e.g., monthly) to their fund. This is an ideal, disciplined, and useful way to accumulate funds for future needs. By making consistent contributions over time, the accumulated amount at the end of the period will increase. This is commonly known as dollar-cost averaging.

At the end of the period, the redemption (or sale) price of the units held will represent the accumulation of all contributions, plus returns generated from the contributed amount since the initial purchase. The effect is more pronounced the longer the holding period and contributions.

This form of saving is the basis of fund accumulation.

c. EPF Savings:

In addition to investing in Unit Trusts with cash or through regular savings plans, you can also invest using the Employees’ Provident Fund (EPF) Members Investment Scheme. EPF will process requests to transfer an amount from a member’s Account 1 to approved Unit Trust funds if:

  • The Account 1 balance is not less than the required basic savings, details included in Schedule 1 as set by EPF for the member’s age.
  • The member is under 55 years old.
  • An account in the approved Unit Trust scheme has been opened where the transfer can be processed.
  • No transfers have been made within the last three (3) months from the Members Investment Scheme.

Transfers under the EPF Scheme are made at intervals of three (3) months from the date of the last transfer, subject to the availability of the required balance in Account 1.

The eligible amount for transfer is not less than RM1,000.

The amount to be transferred does not exceed 20% of the balance in Account 1 remaining after deducting the amount of basic savings set by EPF (subject to a minimum of RM1,000).

6. Understanding Investment Fees in Unit Trusts:

There are three types of fees commonly imposed on Unit Trust investments:

  • Initial Service Charge:
    The first cost incurred by an investor related to investing in Unit Trusts is the initial service charge (sometimes called front-end, sales, entry, or upfront charge). This is a fee charged to an investor who invests in Unit Trusts and is primarily used to cover marketing and distribution expenses and to compensate Unit Trust consultants for the period the Unit Trust units are held.
  • Exit Charge:
    Sometimes referred to as a redemption fee. This fee represents deductions by the UTMC from the proceeds of disposal by the investor.
  • Annual Management Fee:
    Management expenses include portfolio management costs, fund manager fees, unit holder and trustee expenses, audit fees, administration charges such as printing of annual reports, distribution of dividends, postage, and other services properly incurred in administering the fund. These costs are paid out of the fund’s assets.

7. Regulations and Oversight

Unit Trusts in Malaysia are regulated by the Securities Commission Malaysia (SC) to ensure that fund managers comply with established laws and regulations. This provides additional protection for investors.


All investments begin with an understanding of risks and how the investment works. By understanding these factors, we can maximize profits and reduce the risk gap in any investment carried out. Unit Trust investment is one of the preferred investments for younger generations due to its more controlled and easily managed approach.

For those interested in obtaining a free consultation, you can contact the author, Mr. Aliff Shanusi, to learn how to start investing in Unit Trusts or register online for self-management under RHB Asset Management at this link: Register here.

Thank you for reading, and may you gain valuable information and benefits from this sharing.

Aliff Shanusi

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