Wednesday, February 6, 2008

Methods of Investing in Unit Trust Scheme – Lump Sum Purchase

A lump sump purchase is the most common means by which savings are invested in Unit Trust Scheme. Provided that the amount of investment meets the Unit Trust Management Company’s minimum application amount, the investor can invest his savings in Unit Trust Scheme after he or she has completed an application form from a prospectus.

With lump sum purchase, there is no further commitment to add to the initial investment in Unit Trust Scheme. Over period of time, it is expected that the initial investment in most Unit Trust Scheme will grow as investment income and capital gains are earned by Unit Trust Scheme.

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 the purchase. It is the compounding of investment returns over time that makes investments, such as unit trust scheme, so attractive to investors.

For example, a recently inherited sum of money may be invested in Unit Trust Scheme and held for an extended period for some specific purpose, e.g. children education, retirement planning, house purchase. At the end of the period, the proceeds from disposal of units will reflect the initial investment made plus any returns on that amount compounded over the relevant period.

Of course, if the investment returns are negative, the investor will not receive (on disposal of the units in Unit Trust Scheme) the amount of his or her initial investment.