Tuesday, May 6, 2008

Deciding on the fund for you

BUYING a unit trust scheme should be a considered decision - after all, picking the fund that is right for you directly affects your wealth.

These are few tips to help us out :

Know what you want from your investment-Your return requirements.
Do you need a current income, capital growth, or a combination of the two?
Your risk tolerance - how much price volatility are you comfortable with? If a unit price that jumps wildly will give you sleepless nights, then a high-risk fund is not for you, even though it could give you a higher return.

Your time horizon - the longer you intend holding your units, the more volatility you should accept. As a rule, units should be kept for at least three years.

Know your financial adviser - The best way to find an adviser is by asking a trusted friend or family member for the names of their advisers. Then try them out with a visit. Your goal is to find one who is competent, qualified, and professional, who cares for you, and whose services will be ongoing. Ask about your adviser's track record. Ask about your adviser's research capabilities. Ask about the costs of investing - and know exactly what you are paying for. Ideally, your adviser should be rewarded for helping you improve your returns, rather than by commission earned from flogging you a product.

Know your market - A unit trust is merely an instrument that can be used to gain access to the stock market (say, a general equity fund), or to certain sectors of the market (say, an industrial fund). If the stock market experiences a setback, the performance of your funds will reflect this (to a varying degree depending on its shares held). Look forward and not backwards - don't simply invest in last year's winners without further analysis. Consider the tax implications - aim to maximize your after-tax returns.

Know your fund - Choose a fund which is managed by a fund manager with a good track record (and this may not necessarily be the best fund management company). Check that there is a competent and stable investment team behind the fund manager. Ensure the fund mandate is the same as your investment objectives. Ensure the size of the fund (either very large or very small) does not prohibit the manager from adhering to the mandate.

Did you know?
When investing just before an income declaration date your initial charges will be calculated also on the income distribution that will be paid back to you (or reinvested) in the near future?