Why You Should Consider Unit Trusts as An Investment Instrument - Get S$100 Worth of Units from Lion Global Investors for Free!

Most banks in Singapore have made adjustments to bonus interest rates on deposit accounts to mitigate the economic impact resulting from the COVID-19 pandemic. While savings accounts may have been relatively attractive previously in earning a decent amount of interest each year, most consumers have started to look elsewhere for a greater rate of returns for their money. With most investments, the estimated rate of return is typically correlated to the level of risk involved, but if you are a fairly-cautious investor who wishes to diversify your portfolio's risks, you should consider investing some money into a unit trust (UT).

What is a Unit Trust (UT)?

Unit Trusts are generally viewed as long-term investment products and it is especially great if you do not have the financial expertise and experience to leverage on. To put it simply, a unit trust is simply a collective investment scheme where investors like yourself can pool money together (with other investors) for a fund manager with financial expertise to manage. This pooled money is then invested across different assets (depending on your risk appetite) to diversify the risks. Depending on the type of purchased unit trust, there is typically a one-time upfront sales charge, as well as an ongoing management fee (paid to the fund manager) for each fund.

Photo Credit: OCBC Bank

Why Should You Consider Investing in UT?

Generally speaking, unit trusts typically have a higher rate of return when compared to saving accounts but as you would expect, they do come with greater risks as well. Unit trusts are great as there are various different kinds to choose from - you can pick a fund house or a portfolio that is suitable for your personal risk appetite and investment objective. Someone who is younger and prefers to take a little more risk can opt for a high-growth unit trust with mostly equity investments while a risk-sensitive individual may opt for a different product that consists primarily of government and corporate bonds which are deemed to be relatively safer than stocks. 

If you do not have a lot of investment experience and would like to rely on the expertise of fund managers, investing money into a unit trust allows you to leverage the knowledge and experience of these professionals. As mentioned earlier, an ongoing management fee for the desired fund is typically charged to cover the fees of the fund manager.

Investing in unit trusts does not require large sums of money so you can start even when you do not currently have a lot of financial capital - OCBC Bank requires only a minimum lump sum of S$1,000 or monthly contributions of S$100 to get started if you invest online or through the Mobile App. If you have an OCBC 360 Account, investing in unit trusts with OCBC will allow you to earn up to 1.2% bonus interest rate on the first S$75,000on your account from 01 October 2020 with a minimum unit trust purchase of S$20,000.

Photo Credit: OCBC Bank

Things to Look Out For When Investing in UT

As with all financial investments, there are things that you should be aware of since there are risks involved - while a fund might generate positive returns, it is also possible to experience a financial loss from these financial investments. Therefore, you should only invest in unit trusts if you are comfortable with the risks involved.

1. Risk Exposure and Estimated Return

There are plenty of different funds to choose from and they are highly dependent on your personal risk appetite, investment objective, and the desired duration of the investment. As unit trusts do contain a mixture of different assets which may include stock and bond investments (or a mixture of both), investors should be mindful of the estimated risk exposure and returns with each fund. It is also not uncommon to find investment assets being diversified based on geographical markets and/or industry types. 

2. Fund Objective and Strategy

As iterated throughout this article, different unit trust funds have a different estimated rate of returns and risk levels. Therefore, it is important for you to establish an objective when it comes to your investments - unit trust funds can cater to different goals with varying levels of risks and estimated returns. If you wish to generate stable passive income growth, it is not uncommon to find dividend-paying REIT stocks in your funds. However, it is important to note that past performance is not an indication of future returns. 

3. Sales Charge and Other Fees

Unit Trust investments are not free - there are initial as well as ongoing costs involved as fees and payments will have to be made to relevant institutions and fund managers. You should be aware there is usually an initial sales charge (a fee to pay when you purchase a fund) as well as an ongoing management fee which is paid to your fund manager. OCBC is currently offering an online exclusive sales charge which is capped at 0.88% (offer is valid until 31 December 2020) - this fund is taken off your invested amount so if you are investing S$1,000 into a fund online, S$8.80 (0.88% online sales charge) will be taken off your gross invested amount and the net amount of S$991.20 will be used to purchase units in the desired fund based on the latest prevailing fund price.  There are other ongoing fees as well, which will be detailed in the respective funds’ prospectuses. 

Pros and Cons of UTs

PROS 

• Low Minimum Sum to Get Started

• Wide Range of Funds for Different Objectives and Strategies

• Risk Diversification

• Professional Expertise from Fund Manager

CONS

• Sales Charges, Management Fees and other ongoing charges

• Control 

To learn more about unit trusts, you can read more here: https://www.moneysense.gov.sg/articles/2018/10/understanding-unit-trusts 

Alternatively, you may also speak to a financial advisor to get independent advice. 

Get S$100 Worth of Units (LionGlobal All Seasons Fund – Growth) for FREE

To help young adults get started with investing, OCBC Bank and Lion Global are currently offering S$100 worth of units in the LionGlobal All Seasons Fund (Growth) to all eligible OCBC 360 account holders under the age of 30 years old. Eligible account holders must receive an SMS or EDM informing them of the offer and they will have to credit their salary of at least S$1,800 into their OCBC 360 Accounts by 31 October 2020.

Eligible OCBC 360 account holders will have to submit their interest through an e-form to receive this S$100 worth of units in the LionGlobal All Seasons Fund (Growth) and the validation of eligibility will be performed in the first two weeks of November 2020. After the validation of eligibility (for customers who have opted-in for the promotion and have their salary credited), eligible customers will be informed via EDM, and unit trust accounts will be set-up and units will be credited by 30 November 2020. 

Do note that this promotion is only applicable for Singapore citizens and Singapore PR, excluding US and EEA citizens. Credited units cannot be redeemed within six months from the date of crediting and the salary crediting must be continuous for at least three months from the first salary crediting. 

This article was created in partnership with OCBC Bank.