How to choose the right Unit Trust for You?

10 Mar 2022

Unit Trusts (UTs) can be a better investment option because they aim at diversifying the portfolio and outperforming the Market, as explained in our previous article. However, with the various types of UTs available, selecting the right one is important since it may make a signiﬁcant diﬀerence to your investment returns.So, how do you, as an investor, make the right choice?IMPLEMENT A STRUCTURED APPROACHAs a thumb rule, your goals deﬁne your portfolio! Investors need to identify investment preference, investment horizon (duration of investment), as well as risk appetite to ﬁlter and select UTs that align with their portfolio needs and investment objectives.

A strategic approach helps every investor reach their investment goals. For example, a long-term investor or someone looking to invest for 3 - 5 years or more and with the aim to build a retirement fund, could attempt at a balanced portfolio. This could include investments across all major asset classes, diﬀerent sectors, and geographies, based on their end goal. A balanced portfolio will enable the investor to reduce risk concentration. A short-term investor, however, who might be looking to invest for less than 3 years with the aim to put together a fund for their child's higher education or is trying to pay oﬀ a debt, could choose income generation as their goal. Their approach could be to look for high quality and highly liquid assets with lower volatility. Investors can also select sector-speciﬁc funds like in healthcare or energy, based on their approach.Whatever your investment objective, there are UTs designed to meet them. But it works if you have a plan like all institutions and professional investors do: The 5P Approach.

While monitoring the historical performance of the UT is advised, market conditions impact the other Ps as well - the People, Process, Product and Portfolio. These other Ps consequently have the power to inﬂuence the fund’s performance. For an investor, therefore, it is important to watch all the factors instead of relying on just one.

Relying solely on historical performance

Some UTs gain momentum based on how a speciﬁc industry, sector or geography performs in that time. It is, therefore, important to keep market predictions in mind and look for the fund’s ability to generate consistent returns.

Comparing apples to oranges

A UT doing well today doesn’t mean it is aligned to your goals. It is better to choose a fund that matches your portfolio, philosophy, and price margins.

Focusing on the short term only

UTs work better for investors who are looking for longer term returns. As an investor, you can deﬁne your long-term goals and let the right UT do the work for you.

Picking a UT outside of your portfolio

Some UT may seem lucrative given their current market returns. However, if it doesn’t suit your portfolio, it is better to think twice before investing in them.

Looking for the lowest NAV

A low NAV does not imply that the fund is available cheap, neither does a higher NAV indicate an expensive fund. It only reﬂects the weighted average value of all the assets held within the portfolio. Therefore, it is better to focus not on the NAV, but on how the fund is managed.

The DBS AdvantageFinding the right Unit Trust that is aligned to your investment objective may seem daunting. But it is not unachievable when done correctly and with a clear strategy for returns and risk management.DBS Treasures' team of experts can help you ﬁnd the winners and derive potent results for your ﬁnancial future.

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