Monday, February 4, 2008

Disadvantages of Unit Trust Scheme - Opportunity Cost

As with any decision, an investor who invests in Unit Trust Scheme may have produced better returns by investing directly in the markets. This excess represents the 'opportunity cost' of investing in Unit Trust Scheme.

Especially when Unit Trust Scheme performance is disappointing, investors can argue that they could have 'done better' by investing their funds themselves. While this may be true, one aspect of investment that tends to be forgotten by direct investors is the level of risk taken to achieve hose returns.

Investment through Unit Trust Scheme provides a high level of diversification for smaller investors especially those with limited savings.

A single direct investment may produce a return in excess of that from investment through any Unit Trust Scheme, but clearly the risk level accepted by a direct investor is significantly greater than that through investing in Unit Trust Scheme.