A unit trust refers to a collective investment scheme which pools money from individual investors to invest in different financial instruments such as equities, fixed income and others, depending on the investment objectives. It is set up under a trust deed and is managed according to pre-set investment objectives by professional fund managers. Investors in unit trusts are called unitholders and are effectively the trusts’ beneficiaries.
A unit trust is an investment vehicle which aims to help investors accumulate wealth on a medium- to long-term basis. Through unit trusts, investors will invest indirectly into a range of asset classes including stocks and bonds so as to enjoy potential returns from those underlying assets. As there are many unit trusts available in the market, investors are encouraged to take into account their investment objectives, investment horizon, risk-return profile, and other considerations before making an investment decision.
The large pool of funds collected by unit trusts enables fund managers to diversify investments across different countries/sectors/asset classes and minimise unsystematic risk. Unsystematic risk or company-specific risk is inherent in each investment and only affects one company or a small group of companies, mostly coming from a company’s operation and business environment. Unlike systematic risk or market risk which is un-diversifiable, the amount of unsystematic risk can be reduced by holding a portfolio of securities. As a unit trust in general holds more than 25 securities, investing in unit trusts can achieve diversification which may not be readily available to individual investors.
Investors can save time and hassle investigating and studying specific securities by having full-time professional fund managers to manage their investments. Fund managers perform holistic research and analysis on market trends, sectors, and specific securities, and pick the best securities for the portfolios they manage based on their findings.
Most unit trusts are traded daily and open-ended, with creation and redemption of units occurring on a continuing basis. As unit trust has only one price per day and is mostly open-ended, unit trust investment is considered much more convenient than stock investment because no order-matching is required. In addition, a number of channels are available for subscribing to (or redeeming from) unit trusts, such as through your relationship manager, independent financial advisor, unit trust distributor or via the internet.
Unit trusts generally hold a large number of securities. It can be too expensive for an investor to replicate such a portfolio, even at a minimum size of one lot. However, by investing into a unit trust, the investment becomes affordable as monies are pooled from a group of investors. In general, the minimum initial investment in a retail fund can be as low as HK$10,000 or US$2,000.
Owing to certain regulations, investors may be restricted from making investments overseas. However, by investing into a unit trust, investors are offered an opportunity to access and invest into worldwide securities which may otherwise not be available.
Unit trusts usually invest into two types of financial instruments: equities and fixed income. Some unit trusts may also invest into other asset classes like money markets, warrants, or derivatives, or combine different asset classes to form a blended unit trust. Here are the characteristics of the two most common types of asset class, at a glance.
A stock or any other security representing an ownership interest in a limited liability company.
Medium to long term
A financial instrument that provides a regular periodic payment and the return of principal at maturity. Common types of fixed income include fixed and floating rate bonds, zero coupon bonds, and discount bonds
Medium to long term