Lesson 7 – How To Select Unit Trust Funds?
There are many unit trusts funds from which to choose, but having considered the type of fund or funds most likely to meet your needs, you have already narrowed down your choices considerably.
The next logical step is to decide which unit trust fund to invest in.
What To Look For ?
A random check will confirm most, if not all, investors would look at the performance or investment results.
Unfortunately, it is impossible to predict a unit trust’s future investment performance. This will depend on the type of fund, the general market trends and the investments which a fund manager picks.
Most managers would provide the past performance tables that normally show the total returns since inception or how much an initial investment made several years ago would be worth today with any income reinvested.
Look at the performance of the funds but do not pay too much attention to period of a year or less – external factors beyond the control of the managers may have influenced results – a high flyer may not stand the test of time. Ideally, a fund showing consistent performance over a long period, the longer the better.
Check the performance of a company’s other funds to make sure that it was not just a bit of luck with one fund.
Do not let another type of fund take your fancy just because it has produced better results than the one you had initially chosen. It may be more risky and may not meet your requirements.
However, be warned, past performance figures are no guarantee of the future. A fund that has performed well in the past may not do so in the future and vice versa. .
Do’s and Don’ts of Choosing a Unit Trust Fund
- Decide which type of unit trust fund meets your saving needs.
- Shop around for a reliable unit trust company
- Check whether investment limits, frequency of income payments, etc, are suitable
- Check past performance records
·Don’t choose any unit trust fund just because its performance has been good, make sure it is the right fund for you.
- Don’t pay too much attention to short term performance, good consistent performance over all periods is the best lead.
- Don’t decide on a unit trust fund just because it has low charges, good performance is far more important
- Don’t borrow to invest in unit trust unless you are absolutely aware of the risk involved.