In the previous post, we have gone through what an unit trust is and what are the advantages and disadvantages of investing in unit trust. Now that we have a basic understanding on unit trusts, we will move on to the answer some of the more in depth and commonly asked questions about unit trusts.
1. What is the Minimum Investment Amount for Unit Trusts?
The minimum investment amount varies from unit trust to unit trust, however the lowest possible amount available right now is $100 per month for the Shares Builders Plan from Phillip Capital. but you will have to invest $100 every month. Generally, however, the minimum initial investment amount is $1000 for most unit trusts with the amount required for subsequent investment being lower than the initial investment amount. Information about the minimum investment amount required for a particular unit trust can be found in the prospectus of the unit trust.
2. Can I Invest in Unit Trusts that are Set Up Overseas?
Yes, you can invest in unit trusts that are set up overseas. Foreign unit trusts that are offered by Monetary Authority of Singapore (MAS) are known as ‘Recognized Funds’, and you can visit the Offers and Prospectues Electronic Repository and Access (OPERA) portal to check whether a foreign fund is recognized for offer to retail investors in Singapore.
3. Can I use my CPF Savings to Invest in Unit Trusts?
Yes, you can invest your CPF savings under the CPF Investment Scheme - Ordinary Account (CPFIS – OA) after setting aside $20,000 in your Ordinary Account or CPF Investment Scheme – Special Account (CPFIS – SA) after setting aside $40,000 in your Special Account.
To find the list of unit trusts you can invest in, visit the CPF site for more details.
4. How is the Price of Unit Trusts Determined?
The price of the unit trust is usually fixed when it is first launched for sale. If you invest in an existing unit trust however, the price of each unit will be based on the current market value of the unit trust. The number of units you will receive will be dependent on the pricing method used by the fund.
There are two methods for pricing funds, the “Bid and Offer Pricing” method and the “Single Pricing” method, but before going into details on how the pricing methods works, we will need to first explain some terms. The Net Asset Value (NAV) of a unit trust is the value of the fund's assets less its liabilities. The Offer Price is the price at which investors buy units of unit trusts at while the Bid Price is the price at which investors sell their units of unit trusts at.
For the “bid and offer” pricing method, the subscription charge is added to NAV per unit, while the redemption charge is deducted from NAV per unit.
While for the “single pricing” method, the subscription charges are deducted from the amount invested before units are allocated and the redemption charge is deducted from redemption proceeds.
To help you better understand how the pricing method works, I have included a table below to illustrate how each pricing method works.
5. What are the Different Classification of Unit Trusts?
i) Passively Managed Funds and Actively Managed Funds
Passively-managed funds are funds that do not require fund manager to spend much time in selecting the stocks. This is because they usually just invest in the component stocks of a benchmark index.
Actively-managed funds on the other hand, aims to outperform a particular benchmark index. As a result, the fund manager will have to make more active investment decisions as compared to passively-managed funds. Actively-managed funds will hence, also incur more charges and fees as compared to passively-managed funds.
ii) Capital Guaranteed Funds and Capital Protected Funds
Capital Guaranteed Funds are designed to guarantee a full repayment of your capital through an explicit legal guarantee. This guarantee on the capital only applies if you hold the investment till maturity. The guarantee on the capital however, does not usually cover the sales charge. Therefore, you are actually only guaranteed to receive your capital less the sales charge. Capital guaranteed fund typically only invests in low-risk assets.
Capital Protected Funds are similar to capital guaranteed funds in the sense that they both invest in low-risk assets. However unlike capital guaranteed funds, capital protected funds do not guarantee the full repayment of your capital.
3. Close End Funds and Open End Funds
Close End Funds are funds that have a fixed number of issued shares traded on an exchange.
Open End Funds are funds that are allowed to issue new units.
Most unit trusts on the market are open end funds and most small investors will usually not be concerned with whether a fund is close end or open end. However for big investors, close end funds are more desirable as their investment will not be diluted by the issue of new units.
6. What Happens if I Change my Mind about my Unit Trust Purchase?
If you change your mind about your within seven days of your unit trust purchase, there will be no administrative penalty for cancelling your purchase. However, if the price of your unit trust has fallen in value, you will have to pay for the loss. If the price of your unit trust has rose in value however, you are also not entitled to the gain. This might seem unfair to you, but the reason for this practice is to protect existing holders of the fund.
7. What will happen to my Investment if the Unit Trust is Terminated?
If a fund manager decides to close a fund due to reasons such as the fund size becoming too small making it economically inviable to continue managing the fund, the fund manager is required to inform you on how do you obtain a refund on your investment. The fund manager is required to give you at least a month notice of the fund’s termination before terminating the fund. Apart from refunding you on your investment, it is also possible for the fund manager to arrange for a transfer of your investment to another fund.
With this, we have covered some of the more in depth and commonly asked questions about unit trust. Admittedly, there are probably a lot of other questions about unit trust which I have not covered upon. If you have any other questions about unit trust, feel free to leave a comment below and I will research about it and update this post accordingly. In the next part of the series, we will be looking at the different fees involved with the purchase of unit trust and also on how one can compare and choose which unit trusts to invest in.