Unit Trust Savings

Unit trust is an investment tool through which funds from numerous different investors are pooled and managed by professional investment managers (fund managers) in accordance which predetermined investment objectives.

" To achieve the established objective, make a commitment for your future"
Unit trust savings plan is an arrangement under which an investor opens a unit trust savings account, makes regular monthly payment to purchase unit trust, and redeems/encashes all holdings upon maturity.

Advantages of unit trust savings plan:

1. Time Averaging 
   The average investment term for a unit trust savings plan is ten years or above. As illustrated in the table below, the volatility of world equity (MSCI 1969-2001) can be very high. For example, if investment time horizon is 1 year, investment return can be as high as 67.1% or as low as negative 38.0%. However, average difference between high and low narrows along time horizon. If investment time horizon is as long as 20 years, average low/high point of return can be reduced to 10.9% and 16.2%. What is interesting to note is that the average return under two scenarios is more or less the same, at about 13.5%. The return is in no way dampened by the reduction in volatility. It far exceeds inflation and bank interest rate, and the difference gets bigger and bigger though the compound interest effect.
   
    
   Compound Effect 
   Assume $100 investment with regard to different return and number of years.

2. Dollar Cost Averaging
   According to the unit trust savings plan, one is making regular investment in unit trusts which can average one's cost of investment throughout the term. More units are purchased when fund price goes down and less will be purchased when price goes up. The key point is: "Buy more when price is low and buy less when price is high." The investor does not need to time the market and can keep purchase cost of unit trusts at low level. 
   
   
   Example 1: Up trend with corrections along the way

   Month	1	2	3	4	5	6	7	8	9	10	11	12	Monthly Saving $2,400
   Unit Price	$5	$6.5	$6	$7.5	$7	$8.5	$8	$9.5	$9	$10.5	$10	$11.5	Average Price $7.80
   Quantity of Units	480	369	400	320	343	282	300	253	267	229	240	209	Total Units 3,692

   
   
    
   
   Account Value: $11.5 x 3,692 = $42,458
   Savings: 12 months x $2,400 = $28,800
   Return on Investment: 47.4% profit = $13,658 
   
   Example 2: Fall followed by stabilization

   Month	1	2	3	4	5	6	7	8	9	10	11	12	Monthly Saving $2,400
   Unit Price	$11	$10	$9	$8	$7	$6	$5	$6	$7	$8	$9	$10	Average Price $7.80
   Quantity of Units	218	240	267	300	343	400	480	400	343	300	267	240	Total Units 3,692

   
   
   

3. Flexibility of unit trust savings plan: