Is unit trusts a good investment

A unit trust is an investment vehicle that includes a pool of assets. These can be purchased and sold as units, according to its prospectus or license agreement. The term unit trust has also been used to refer to an investment company that issues mutual funds. Although there are some differences between the two types of investments.

Read this article to learn more about unit trusts in sri lanka. This includes how it works and what you need to know before putting your money into one.

What exactly is a unit trust?

A unit trust is a financial product that invests money on behalf of investors. The funds can be invested in a variety of assets such as stocks, bonds, government securities and commodities (such as gold or oil). A unit trust can be managed by an individual or by professional fund managers. Both types are known as open-ended collective investment schemes.

Unit trusts differ from other investment products because they also contain trustees who oversee how money should be invested for investors’ benefit. To buy into a unit trust you have to buy units, which come in various sizes depending on each scheme’s rules. Your contribution goes toward buying shares in a pool of investments.

All investors share any gains or losses based on the size of their stake. As a long-term investor, it’s important to remember that returns percentage may fluctuate.

The benefits of investing in unit trusts

There are many advantages to investing in unit trusts.

1. Efficiency – It is convenient and allows you to invest small amounts of money that would be too expensive if used in stock trading. Unit trusts also have a wide range of funds available to suit all investors. The investor has control over when they want to redeem their investment, which means they can buy at low points and sell at high points without having to worry about timing. They also allow investors who don’t have time or skills in stock trading to benefit from price rises and falls of companies.
2. Diversification – Unit trusts also offer diversification for an investor’s portfolio as more than one company is represented in a trust fund with different holdings so if one company goes into liquidation then your entire investment is not affected.
3. Interest rates – Compared to your normal saving account unit trusts have more returns. Even though unit trusts give nearly equal interest rates with some low term fixed deposits.
4. Liquidity – you can access to your funds anytime from anywhere like your saving accounts. You can deposit and withdraw the money within 1-3 business days.
5. Compounding – Your money will subjected to compounding in most unit trusts due to the unit trading price. So if you keep the funds for a significant period of time you can get a he advantage.
6. Professional management – Your funds monitored by some financial experts and asset management company will assign a financial manager to get support with the funds or questions regarding the funds. You receive account statements and performance reports right into your phone.

Things to consider before investing in unit trusts

Unit trusts in sri lanka are safe as long as you follow a few basic rules.

1. Beware of the different types of funds you are investing in. If you choose fixed income unit funds or high yield funds then only you will get the low risk moderate returns. If you choose to go over the mutual units such as equity or index then you have to face a significant amount of risk. This along with the investing instruments of that investing fund scheme.
2.  Don’t go crazy and dump all your money into any one unit trust of an asset management company. If the company goes burst then as per the terms and conditions you have to face the risk which produces thereafter. Instead, build a diversified portfolio that includes different types of unit trusts with different objectives and time horizons.
3. Always keep emergency fund in cash to cover your sudden expenses. Because in some circumstances the funds take nearly 1-2 weeks to get in to your saving account due to some technical and internal issues. So be aware of this.
4. Inflation – Even though fixed income unit funds are good beginner opportunities, but they are not the only one. Most asset managements offer 6-8 % return including compounding.  So don’t glad that your money is growing in unit funds. You are little ahead of fixed deposit and saving accounts.(Srilanka’s inflation rate is 14% as the time I writing this article)

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Author’s Disclaimer

Are unit trusts a good investment. Unit trusts are usually combine up of many different investments. So when considering an investment, you’ll need to know a little bit about each of them.

The best way to do that is by checking out their prospectus the document that details all an investment’s risks and expected returns.

You’ll also want to look at past performance data and learn more about any restrictions on your investment. By thoroughly vetting an investment before putting your money in it, you’ll be able to reduce unnecessary risk and maximize returns.

Where can I buy unit trusts. To get start, here are two things every prospective investor should consider before investing in unit trusts:

1. Which type of unit trust makes sense for me 

There are numerous types of unit trust, including index funds and collective investment schemes. Index funds invest in multiple securities across asset classes (such as stocks or bonds) without focusing on individual sectors or specific investments.

Collective investment schemes involve pooling investors’ assets under professional management. investors may earn higher returns but they might also face greater volatility. As well as limited liquidity if there aren’t enough buyers during a market downturn or emergency withdrawal period.

2. Can I diversify my portfolio with unit trusts –

Investing money can be daunting, which is why we recommend purchasing more than one unit trust at once. By spreading your money across different types of investment opportunities, you’ll be able to reduce unnecessary risk and boost returns over time.

The right balance will depend on your personal situation. For example, if you are nearing retirement and want to protect yourself against market downturns. you might opt for a relatively stable investment option. Such as a fixed-income fund or saving high yield funds.

If you are looking to build wealth faster to buy a house or put your kids through college. Then it might make sense to take on a little more risk by investing in stocks or real estate.