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How To Pick A Profitable Unit Trust Fund


We have all heard the advantages of investing in a unit trust fund over trying to pick individual stocks. First of all unit trust funds hire professional analysts that are market experts and devout many hours of study to the various stocks. Unless you want to devout a large portion of your free time to the study of the financial reports, you probably won't have as much information to make a decision as a unit trust fund manager.





Then there is the well documented advantage of diversification. Risk is reduced by holding several non correlated investments. Put simply, some go up, some go down and combined, the return levels off the fluctuations, or risk.

Finally, a unit trust fund offers smaller investors a chance to invest in small increments rather than having to save a large chunk of cash to purchase 100 shares of stock.

Given the above advantages, it is no wonder that unit trust funds have become a very popular form of investing. Now there are thousands of unit trust funds to choose from, so how does one make a selection? Here are a few tips:



1. Do not be seduced to jump on the recently performing best fund. It may seem like the safe and rational thing to do, but like individual stocks, you want to buy low and sell high, not buy high and pray for more growth.

2. Even good funds may not be able to overcome the force of the overall market. You should be looking for funds that can exceed the broad market without increasing risk. Each fund has certain risk parameters that it is required to follow. Read the prospectus closely to understand what these are.

3. Limit the number of funds that you own. Unless you are trying to simply achieve the same returns as the broad market, diversifying into many unit trust funds will not reduce your risk or increase your return by much.

4. Funds that become too popular and too big tend to slip in performance. There are several reasons for this. 


Example :
Imagine a three football field size big tanker compare to a small fishing boat, which one turn or change the direction faster and easier?
Another factor is when a fund size is too big, the fund managers might facing challenge to make the investment into a particular stock. There is a limitation to hold one particular stock in one fund.




One final point to keep in mind is that the type of fund will totally depend on your investment objectives. There are certain funds that are designed for your objectives be they retirement, income, growth, funding the kids college, etc.

The most important is knowing your investment objective clearly. Understand your risk profile, your investment time horizon first.
Then only start to sit down with your unit trust consultant for fund selection and portfolio design.

Good luck and happy invest.

Great Leaders Have No Rules


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