Classifications of UTS funds

• Equity Fund
• Most common UTS in Malaysia. The major portion of equity UTS portfolios are shares of listed companies.
• Popular as they provide investors with exposure to companies listed on Bursa Malaysia (and some overseas share markets). The performance of most equity UTS is therefore closely linked to the performance of Bursa Malaysia. A rising share market will normally result in an increase in the value of units in equity UTS, and vice-versa.
• There is a wide array of equity UTS available in the market, ranging from UTS with higher risk-higher return characteristics to those with lower risk-lower returns. For example, the objective of the an aggressive growth fund is "to seek high capital growth over the medium to long-term period through investment in situation and high grow stocks". On the other hand, a savings fund's objective is "to achieve long-term capital appreciation while at the same time producing a reasonable level of income".
• Another type of equity UTS is the 'index' UTS. These UTS invest in a range of companies that closely match (or 'track') companies comprising a particular Index, for example the Kuala Lumpur Composite Index (KLCI). Investors who participate in this type of UTS will expect to generate investment returns that closely resemble the KLCI, both in terms of risk and return.

• Fixed Income Fund
• There trusts invest mainly in Malaysian Government Securities, corporate bonds, and money market instruments such as bankers acceptances and fixed deposits. The objective of a fixed income (or bond) UTS is usually to provide regular income, with less emphasis on producing capital growth for investors. It is possible, however, for fixed income UTS to generate both capital gains and losses during periods of volatile interest rates.
• Often, fixed income UTS are held by an investor as part of his or her investment portfolio as these UTS can provide diversification to reduce the risk level of the portfolio. This is because investment returns from fixed income securities can have a negative correlation with those of equities, i.e. when returns from investing in share markets are falling, the returns from fixed income securities may be more positive. This negative correlation can be a useful tool in the management of risk in an investor's portfolio.

• Money Market Fund 
• One of the most popular types of UTS overseas is the money market (or 'cash managment') UTS. In the US, the amount invested in money market mutual fund now exceed that saved through the banking system. (Malaysia's former Prime Minister's blog post titled Four Trillion Dollars is interesting to read regarding this matter)
• Money market UTS operate in a similar way to a bank account - the unit price is normally set at a fixed amount, say RM1.00, and there are no entry or exit charges levied. Money market UTS invest in low risk money market instrument that are, in effect, short-term deposits (loans) to banks and other - low risk - financial institutions, and in short-term government securities.
• The weighted average maturity of money market UTS (average time before such loans are repaid to the trustee) is normally no more than, say, 90 days and usually much less. the money market UTS is therefore highly liquid and ideal for use as a short-term 'parking place' for investors' savings, or for longer periods. Income distributions are paid regularly and frequently, and reflect the generally higher interest rates available to institutional investors in the money markets.
• In Malaysia, money market UTS are currently not common.

• Real Estate Investment Trusts (REIT)
•  Invests in real property, usually prominent commercial (office) properties, and provide the investor with an opportunity to participate in the property market in a way which is normally impossible for the smaller investor (An investor with, say, RM1,000 who wants to invest in commercial property would find it impossible). By acquiring units in a listed REIT, however, it is possible to invest small amounts to gain exposure to the property market.
• Returns from property comprise net rental income plus or minus any change in the value of the property over the period. The prices at which units in REIT trade on Bursa Malaysia will reflect these returns. A unitholder in listed REIT receives a distribution paid from the net rental income and can make a profit or loss on selling units. The price of units in a listed REIT should approximately reflect the market's assessment of the value of the real property held by the UTS.
• Of course, real property valuations reflect a number of factors including rental and vacancy rates, management expenses, location and physical attributes of the property. These factors, therefore, also need to be taken into account when investing in REIT.
• Because of the illiquidity (opposite of liquidity!) and indivisibility of property, most REIT are closed-end, and the units are listed on a stock exchange. Units in listed REIT can be bought and sold through stockbrokers, and PDUT would not normally arrange to buy or sell units for an investor.

• Exchange Traded Funds (ETF)
• ETF is like a listed index UTS whose investment objective is to achieve the same return as a particular market index. It will primarily invest in all of the securities or a representative sample of the securities that are included in a selected market index.
• ETF often have low expense ratios and can be bought and sold throughout the trading day through a stockbroker, on an exchange like listed shares. Unlike traditional UTS, through, unit prices of the ETF are set throughout the day by the laws of supply and demand.

• Balanced Fund
• Some investors may wish to have an investment in all the major asset classes to reduce the risk of investing in a single asset class. There are two ways to achieve this - either invest directly in a range of single asset class funds (e.g. equity UTs and a fixed income UTS and REIT); or invest in a single UTS that invests in several asset classes. A balanced (or 'diversified') UTS generally has a portfolio comprising equities, fixed income securities, cash and property - although property exposure may be obtained through holding units of listed REIT and shares of real estate or construction companies. Direct property will not normally be held as it is illiquid.
• Balanced UTS exhibit lower volatility that most single asset class UTS (except money market UTS) but offer some prospect of returns higher than those available from money market UTS, savings accounts and fixed deposits. Some balanced UTS have a higher component of growth assets (principally equities) and to appeal to investors comfortable with some risk, whereas lower risk investors may prefer to invest in balanced UTS that invest a higher proportion of the portfolio in more defensive assets (i.e. fixed income securities and cash). A more defensively invested balanced UTS may produce a higher level of distribution, but produce lower capital growth.

• Syariah Fund (Islamic Fund)
• The main objective of Syariah (Islamic) UTS is to provide an alternative avenue for investors sensitive to Syariah requirements. The utmost task of Syariah UTS is to always invest in a portfolio of halal companies, Islamic Debt Securities and bonds or other securities in accordance with Syariah principles. Halal companies will exclude those companies involved in activities, products or services related to conventional banking, insurance and financial services, gambling, alcoholic beverages and non-halal food products.
• The returns of Syariah UTS will also avoid the incidence of riba or usury interest through a unique systematic process of cleansing or purification in removing the amounts representing all non-Syariah permissible elements. Such amounts are normally donated to charities.

• Government-Sponsored Fund
• The modern era of the unit trust industry in Malaysia started in 1981 with the launching of the Skim Amanah Saham Nasional (ASN), a government-sponsored UTS managed by the Permodalan Nasional Berhad (PNB). The UTS was launched to mobilize the savings of the Bumiputra and to invest in Malaysian companies under the then New Economic Policy. Such was the success of the ASN that PNB has since promoted several other UTS and state governments, too, have launched UTS with similar objectives.
• Government-sponsored UTS represent the bulk of UTS (by value) managed by the unit trust industry in Malaysia. They generally invest on a balanced basis although equity-invested UTS are also available. Equity invested government-sponsored UTS may have a fluctuating or variable unit price while those UTS investing in more balanced portfolios normally have a fixed RM1.00 unit price and operate on an account basis, i.e an 'earnings' rate (representing the total returns of the investment portfolio UTS for the year) is credited annually to each investor's account balance.

Contact me for your financial planning and recommendation of a fund that suits you today! Knowledge is power! :)