What is Unit Trust / Mutual Fund?

Unit trust and mutual funds refer to the collective investments which enable individuals to pool their money into a fund which is then invested in a wide spread of instruments such as securities, commodities or money assets. The fund will then be managed by investment professionals according to the fund's stated investment objectives and requirements. That may result in various risk and return profiles which fulfill the need of different investors. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in the fund investment

Why Invest in Fund?

As funds pool individual's investment together, it makes some inaccessible or unaffordable investments become accessible and less costly to invest. Also, money is managed by professionals who dedicate all the time and resources to manage the investment for us. Of course, fund brings the benefits of diversification over asset classes and geographic allocation to the individual investor, providing an opportunity for financial success that was once available only to the very rich. Of course, different types of funds can make you easily find an investment tools which fit your own financial planning.

Types of Funds?

The types of funds could be characterized by its investment strategy, asset class or geographic allocation. Take for example, a fund manager may set an investment objective like generating income, or growing the capital, etc. Alternatively, he can simply invest in a specific asset class, like stock or bond in a specific market like United States. When choosing a fund, it's important to make sure that the fund's goals and risk level align well with your own considerations as accordance to each characteristic.

1. Money-market Funds
Most of the money-market funds aim at preserving principal while yielding a modest return. These funds are a very special sort of unit trust/mutual funds. Most of them invest in short-term securities, certificate of deposits and even hold cash that pay a modest rate of interest and are very safe. Many money market funds also serve as the temporary safe heaven in a fund management companies under volatile market condition.

2. Bond Funds
Obviously, bond funds buy bonds issued by many different types of companies. The difference among different types of bond funds will mainly depend on the category of bonds the investment managers invest. Types of bond funds could include high yield corporate bond, high quality government bond, emerging market government bond or asset- back securities.

3. Equity Funds
It is one of the most common types of funds investment. Normally, equity funds buy shares in many different types of companies and market. Some typical examples include international equity funds, regional equity funds, single-market like Hong Kong Equity Funds. Stock fund can also be classified by the investment style of the investment managers like value or growth style equity fund. Or it is common for a manager to specify its investment to small capitalization or large capitalization companies or a specific sector (like technology industry). Risk and return will then be in association with the risk level of the underlying assets of the funds.

4.Balanced Funds
The objective of this sector of funds is to grow the investment principal and generate income for investors. Usually, these funds invest in both stocks and bonds. As the investments are diversified across asset classes, investors will be able to reduce their systematic market risk. However, risk will also differ among balanced funds which possess different asset allocation.

5. Index Funds
It is classified as a passive investment strategy as an index fund put all its money into the market in a way determined by some market index and does almost no further asset allocation or securities trading. It can link to a bond or a stock index. The advantage of an index fund is the very low expense and will never under perform to the market. However, one will not expect higher than normal investment return by simply investing in an index. No value-added service provided by the professional managers will be available in an index fund.