- Lump Sum <= Click for more info!
- With a lump sum purchase, there is no further commitment to add to the initial investment in a Unit Trust Scheme (UTS). Over a period of time, it is expected that the initial investment in most UTS will grow as investment income and capital gains are earned by UTS. When the investor ultimately disposes of his or her units, the repurchase price of a unit will reflect the accumulation and compounding of investment returns over the period since purchase. It is the compounding of investment returns over time that makes investments (in this case, UTS) so attractive to investors. For example, you inherited a sum of money and would like to invest in UTS, where it will be held for an extended period for specific purposes such as to afford children's education, retirement planning, house purchase, etc.
- Reinvestment of Income <= Click for more info!
- By reinvesting distributions from UTS, an investor can acquire, on a regular basis, small numbers of additional units that, over time, can add significantly to total returns from investing in UTS. Often, small amounts of distributions from investing in UTS are dissipated rather than saved by investors. Reinvestment of distributions is therefore a simple and easy way to increase an investment in UTS. In simple terms, benefit more by not withdrawing the returns/dividends and let it become compounded for it to grow larger in time.
- Regular Saving (Recommended choice!) <= Click for more info!
- A series of smaller lump sum investments(contributions) are not contractual and can be stopped at any time without penalty. This is a disciplined, useful and flexible way for investors to accumulate capital for a future need. By making regular contributions over a period of time, the sum (including investment returns) accumulated at the end of the period may be expected to be significant compared to the amount of each regular contribution.
- Attractive to smaller investors because they can participate with a capital outlay of typically as low as RM100.
- Borrowing To Invest In UTS (Not recommended!)
- An investor can obtain a loan from a financial institution for the purpose of investing in UTS. However, the question is should an investor borrow to invest in UTS? Each investor's position is unique, so generalizations are difficult to make. Prospective investors must carefully consider the implications of investing with borrowed funds before committing themselves to a loan. If the investors doesn't understand UTS and the financing arrangement, then borrowing should be avoided.
- Here is a list of risks involved in borrowing to invest in UTS:
- Interest Rate Fluctuations - Usually in variable rates (e.g Base Lending Rate). The total cost of financing an investment in UTS cannot therefore be predicted. This increases the uncertainty of the expected profits.
- Default in Repayment of Loan - When there is a default, the lender is entitled to liquidate the investment in UTS. Action may be taken with or without the consent of the borrower. Units may be sold by the lender at a time that is determined by the lender (borrower loses control over selling units decision). Any shortfall between the proceeds from disposal of units and the amount of the loan has to be paid by the investor.
- Premature Repayment of Loan - Borrowing for investment in UTS is a long-term commitment, whereby the loan period may be up to 10 years. Due to unforeseen circumstances (e.g. loss of employment), the borrower may wish to repay the loan before the agreed repayment date, despite affordability.
- Margin Call - The value of UTS may vary from time to time, thus lenders may find that the value of units in UTS are held as security (collateral) for the loan provides them with insufficient margin over the amount of the outstanding loan. Failure to pay additional amounts on top of your normal installments can cause the lender to sell units in UTS to reduce the amount owed.
Contact me for your financial planning and recommendation of a fund that suits you today! Knowledge is power! :)
