Unit Trusts – a great way to kick off a wealth-building strategy
Investing in Unit Trusts is a great way to kick off a wealth building strategy, according to Ruvini Fernando, Director/CEO Ceylon Guardian Fund Management Ltd, the Fund Management Company of the Carsons Group. So what are they, the curiosity gets the better of any lay person as this sounds so exquisite. The popular definition is that they are collective investment schemes. These are vehicles established for investors who pool their cash in one fund. The fund, in turn, uses this money to buy a portfolio of assets. You get different types of Unit Trusts, Ms. Fernando says. Some invest in shares, also called equities. Others invest in securities that pay interest, like government bonds. Some groups invest in both.
So what’s the big deal?
Reasons to promote unit trusts include the safety, low risk and simplicity. Ms. Fernando says that a fund manager makes decisions on your behalf and the investment risk is usually lower than for other types of investments. “A Unit Trust spreads your money across many investments. This means that if one investment doesn’t work out, you won’t lose all your savings,” Sumith Perera, Head of Portfolio Management at Ceylon Guardian. But if one investment does extremely well, the total holding won’t rise in value to that extent. So, there is less risk, but less return. Still, you have the ease of knowing it is unlikely you will lose all of your money suddenly. Although local investors had hoped for a turn in market fortunes this year, many have continued to endure a bear run mostly in the local equities market.
With rising interest rates many new and small investors have been forced to hold back their money and park their cash in traditional banks. However, small and new investors can still safely put their money in unit trusts and Mr. Perera says the compounding growth of this product will ease wealth management issues of small timers. So this demystification of unit trusts being more inclined towards the elite doesn’t hold water anymore. Dishing out statistics, Asanka Jayasekera, Fund Manager at Ceylon Guardian says that as this is a long term product, on an average it has “granted some 75 per cent in returns adding that it’s designed for people to invest in long term”. Ms. Fernando adds that Unit Trusts carry the same flexibility of a savings account.
If you need your money, you don’t need to give a long notice period – just 24 hours earlier – and you get you cash. “This is the same as placing your cash in a bank account with a good interest rate. You can have your money within a day.” She says that mostly unit trusts have taken off amongst corporates as it makes more sense to them than the mere retail-bent mortals. But, the good news is that Ceylon Guardian has done and is doing a lot of work to promote it and broadbase it. “It’s a tax free product and is ideal for those who want to save for the long term,” he adds noting that when matching the FD returns, the unit trusts have doubled their wealth after 15 years of compounding. “We swap the investments around in an intelligent way so that the customer gets the maximum,” Ms. Fernando smiles adding do give it a try. Well, it’s worth a try as their Money Market Fund won the Silver at this year’s CFA Awards.