We’ve gone through unit trusts investment in few articles before. You may get the ideas of having unit trusts investment will help clear your mind on investing but there are some drawbacks that need to be considered.
Well, if you never heard of unit trusts investment, maybe you should read Unit Trusts, The ‘Safest’ Investments For Beginners In Malaysia?
If you want peace of mind, you may consider unit trust as one of your investments. You just sit back, relax and let professionals do their job. You just have to wait for the results of your investment. How’s that?
Like there’s no light without the darkness, there is also its downside. It’s up to us how to manage our investment settings. Unit trusts investment may not suit us, but it may suit somebody else well.
5 Drawbacks of Unit Trust Investment
1. The Fees
Investing hassle free will cost you some fee. As we all know, your funds will be managed by professionals who are the fund manager. As the fund manager trying their best to get the most profit from your investment fund, you will need to pay for their expertise.
Your returns may be lower than the market due to this fee. Besides, other fees may also be applicable, such as administration fees etc.
2. Less Control of Your Investment
Yeah, that’s your money, but you don’t have control. The fund managers will manage it for you. You won’t be able to select the exact assets or specific stocks to buy. But no worries, as an investor, you can still choose trusts that align with your risk appetite or your investment goals.
Other than that, your fund manager will help you manage the fund based on your goals and preferences. You must trust their expertise in managing your fund!
3. Brain Dead Portfolio
There are also unit trusts known as brain dead portfolios. Fund managers will buy various types of investment instruments as an investment method, but there is no portfolio reconstruction process implemented by them (not all).
Your investment will be passive and wait for time to pass until the value of the stock increases in the future. This will be detrimental to investors as it will cause the profit taking period to be longer. A good fund manager will review their portfolio, sell unprofitable stocks, and replace them with more potential holdings.
4. Lower Returns Than ASB & Tabung Haji
Not everyone has the privileged to subscribe to ASB and Tabung Haji. They opt for other investments like unit trusts. Believe it or not, there are times when ASB and Tabung Haji returns were better than unit trusts.
Typically, these low return of unit trusts was due to too many funds being put into low-risk products such as government bonds that only will give you around 3% – 5% per year. If it’s too low, the investors have to wait for at least 2-3 years to get the original working capital (don’t forget about the other charges incurred).
5. Not Suitable For Short-Term Investment
Most of the unit trusts are not suitable for short term investment. That is what often touted by agents or principals. The acquisition of profits takes time. It’s not a one-night rodeo and you can just enjoy your profits. It takes time!
Want to know what unit trust investment can offer you? Please read The Benefits Of Unit Trusts Investment In Malaysia.
Unit trusts are a very good investment but it will not suit every investors. Make sure that you understand your investment preferences and needs before investing.