Common Misunderstanding About Unit Trust

Most of the Unit Trust investor are stocks trader as well.

And a lot of time they tend to think that both of this two financial instrument has the same characteristic. Today we are going to look at some of the common misundertandings that lots of investor are embracing.

Misunderstanding #1 : The price.

Investor tends to think that high NAV prices means the fund is expensive. The truth is we need to understand the underlying stocks(if it is an equity fund) that the fund is holding. If the underlying asset are all undervalue stocks, then even a fund with NAV price of US$108 is consider cheap if compare to a funds with low NAV US$0.97 but most of the underlying assets are overvalued stocks. I've heard many people rushing to buy the so called 'cheap fund' without first read the factsheet of the fund.

Nowadays some fund houses also adapt a marketing strategy of "spliting" the NAV prices, so that it looks cheap to those retail investor who still embrace the wrong concept of NAV prices.

Misunderstanding #2 : New Fund

There's nothing new under the sun! New Fund doesn't equal to IPO(initial public offering). A term that is used to describe the first sale of a corporation's common shares to investors on a public stock exchange. Guess what? People love that so much cause it has the potential of generating high percentage of return in days.

Now Asset management company is also a sales company. They launch new funds after new funds cater for the markets need. Most of the time it's base on market hype. 2 years ago, if you walk in any bank or wealth management company, they will show you India fund, and each of them will tell you that theirs is the best India fund. A year ago, you would probably be recommended to take up the China fund instead. There's nothing wrong to move/rebalance your fund to a more attractive market/sector. But what i'm saying is don't buy into a fund just because its new. For example, earlier of the year there's a vietnam fund being launched by an asset management company, it almost become the best selling fund, and everyone seems to rushing in. Well, i guess you know what i'm going to say next. It doesn't perform! But don't get me wrong, i'm not saying it is a bad fund, and i believe it will perform in long term, so the point here is know yourself, know your objective and time frame of investment before commiting anything.

Misunderstanding #3 : Management Fees

A lot of time investors tend to make decision base on the fund's management fees. Frankly speaking if the fund can outperform the market by 10% more, why should we penalize the fund for charging 1 or 1.5% more of management fees. I'm not comparing a fix income fund with an equity fund, because the fix income fund has to be lower in terms of fees, due to less transaction/deal involve. But when we compare the same category fund, i think we should focus more on the performance of the fund and the ability of the fund manager instead.