By Evelyn Yong | 7 September 2018
There is always an argument between buying a stock or buying a unit trust. Before saying that which one is better, let’s look through the characteristics of both stocks and unit trust for better understanding.
A unit trust is a product comes out by a fund house which has a group of professions in managing the capital gathered. It usually exists as an open-ended fund which is no limit with the purchase unit. The price of the shares is determined by the fund’s net asset value (NAV) per share which calculated at the end of each business day. An open-ended fund can issue any number of new shares or can redeem existing shares. Their shares or units of a mutual fund did not trade on an exchange and quoted at per-share NAV (i.e. the fund’s net asset value divided by the number of fund shares outstanding).
‘Unit trust’ comes with the word of ‘trust’ which mean you trust on the fund management team in both ability and professionalism so that you buy the unit of the fund. Hence, the fund manager is fully empowered in decision making in managing the portfolio. Thus, the investor has no rights in judging, questioning and affecting about the assets allocation, diversification and all the decisions made within the portfolio. If you don’t like the style of the fund manager, the only way you can do is divest your units.
A unit trust is available in various types with a different investment focus. (ie. Equity Funds, Balanced Funds, Fixed Income Funds, Capital Protected Funds, Shariah Funds, etc.) For example, Shariah funds will only invest into Shariah-compliant investments which avoid companies involved in activities, product or services related to conventional banking, insurance and financial services, gambling, alcoholic beverages and non-halal food products. The set-up of so many types of funds intends to fulfil different kinds of customer’s need and the risk compliance.
The customer can choose the fund’s that meets your investment objective and approach. Besides, they can also look for the historical performance as a comparison with other similar funds. Although the past performance cannot guarantee the future performance at least, this is a reference for a customer in choosing a better fund as the same concept in fundamental-based stock investing.
Fees and Cost
Investing in a unit trust is like you ask someone to help you in managing your money. Hence, rationally, you have to pay them money for the hard work. Commonly, there are four kinds of charges which are initial sales charge, management fee, redemption charge and switching fee. Initial sales charge also known as front-end load which the investor is charged when buying a unit trust (typically 1.5-5% of your investment). For example, RM 1000 is given to invest in a 5% initial sales charge fund; then the amount will be placed in the portfolio will be left with value worth RM 950.
The management fee is an annual fee charged by the fund manager for the management of the fund, typically 0.5-2% per annum of the Net Asset Value of the fund. Other types of fees are charging when doing related changes. All those fees are usually payable, regardless of how well or poorly the fund performs. Therefore, even your fund’s value has been relatively stable or may perform well; the investor will get a lesser return percentage from your unit trusts investment.
Stocks are the shares of companies listed on exchange trade platform. (ie. Bursa Malaysia, Singapore Exchange, Hong Kong Exchange, etc.) They are listed on the board and selling their shares to get capital to the company for development. Hence, the volumes of shares are limited to the companies’ offered. Every stock has their book value. The Board will display the last traded share price, and it might change by seconds to seconds.
An investor has his right to put their money in which stock (no matter in which industry or country), and once the transaction is successful, the investor will become as a shareholder of the company. The investor has the right to buy or sell the stocks at any time as he decided and able to manage his portfolio in his favour.
Stocks are segregate into high dividend stocks, blue-chip stocks, fluctuating stocks and so on. An investor can go in different kind of shares which suits their preference and personal risk compliance. High dividend stocks might have a lower chance at price appreciating. Blue-chip stocks are companies in the stable stage which can avoid much effect from market turbulence and lower down the risk for the portfolio. High volatile stocks might from some profoundly affected by the nature of some industries. (ie.petrol related industry, steel industry, etc.) They have the chance of getting price appreciated at the same time they also facing the risk of suffering loss.
Fees and Cost
To trade on Bursa Malaysia, an investor needs to open a CDS account through a brokerage firm which subjected to RM10 once-off charge. The CDS account will act as a depository for you to keep the stocks after buying them. At the same time opening the CDS account, you require to open a trading account with the broker firm together. The broker will act as a helper to help you in dealing with every transaction. The broker firm has the standard brokerage charge (typically RM7-28 / 0.2% on the invested amount), and the government is also charging the fixed rate 0.001% of stamp duty and Bursa Malaysia also charging on 0.03% of clearing fees. The total minimum cost for a transaction is around RM10. Hence, the more significant amount invested, the lower the percentage of taxes charged which is also the payable cost no matter how the stocks’ performance.
|Unit Trust||Characteristics||Stocks Investing|
|Units unlimited can buy whenever time||Nature||Shares limited, intend to buy needed another to sell|
|No, in all decisions||Controllability||Yes, in all decisions|
Fixed Income Funds,
Capital Protected Funds,
Shariah Funds, etc.Depends on risk preference and investment objectives
|Types||High Dividend Stocks,
High Fluctuating Stocks, etc.Depends on risk preference and investment objectives
|1.5-5% Initial Sales Charge,
0.5-2% Annual Management Fee,
and other charges on different changes made
|Fees||Minimum RM10 per transaction|
In conclusion, a unit trust is more suitable for the investor without investment knowledge as an investor need to prepare the money for the fund manager to manage it while investing in individual stock require a minimum investment knowledge and time-consuming in market observation as well as researches needed to select a good share.