Common mistakes in unit trust investment

By Kenney Khew

Unit trust investment is a common pool money put in by investors where the accumulated funds are being managing by professional fund managers.

These fund managers will then invest in stocks, bonds and various asset classes across different countries and industries.

A unit trust fund is required by the law to protect the unit trust holders (investors) by ensuring that the funds are operated according to the trust deed.

Thus, the following are the main benefits of investing into a unit trust fund:

  1. Diversification
  1. Liquidity
  2. Professional fund management
  1. Small investment capital
  2. Regulated industry
  3. Time saving

Unfortunately, many still find it difficult to understand and making mistakes in preparing for long term financial goals such as for retirement and children education.

The following are the common mistakes of unit trust investment :

1. Misunderstanding between stock investment and unit trust investment. Many tend to speculate rather than investment.

Unit trust investment is totally different especially as compare to stock investment.

A unit trust fund invests in different stocks across different industries and countries based on their mandate.

In contrast, stock investment refers to putting your money in a particular stock(s).

2. Investors tend to ignore the risk profile.

Many investors tend to take thing for granted. They do not take into consideration their risk appetite, whether they are a conservative, moderate or aggresive investor.

I am strongly believe that the unit trust company would have done this basic risk assessment when taking in the investor’s initial investment.

Unfortunately, many tend to invest simply with the sole objective of maximising profits as soon as possible but totally disreagarding their risk tolerance level.

They are neglecting the elements of investment such as period of investment, risk tolerance and goals.

Likewise, whenever unit trust investment fail to produce a profit, they will blame the consultant and everyone else except themself.

In fact, there is fund fact sheet to read and for investors to understand the risk. It is important to take note of the volatility percentage.

3. Short Term Profit

Too much emphasis on profits in the short term.

On many occasions, investors will wait for the next opportunity after taking short term profit.

Indirecty, they are neglecting their their long term goals such as retirement or children education that require 10 to 30 years of investment.

4. Timing the market is the most common mistake that people make.

They try very hard to time the market; looking at buying stocks at its low and exiting at its high.

However, they forget that unit trust investment is about accumulating units of their holding.

They also forget that they get more units during low market cycle and lead to the lowering of their cost of unit holding.

Therefore, those who do that will have more profits in the long run than those who do not .

In other words, the unit trust investment does not focus on unit price only as compared to share investment.

5. Attitude of investors towards unit trust investment is lower than other investment tools.

Many fail to understand that unit trust structure and its advantage of diversifying risks by investing in at least 20 to 30 stocks according to their investment mandate.

Many investors try to compare shares or equity with unit trust investment. This is basically comparing apple with orange in this situation .

6. Keep referring to past investment record as an indicator of future returns.

The past performance can only be a guide that the unit trust company and their fund managers are doing well at that particular time.

However, the best way to analyse this is to look at their fund fact sheet.

The fund fact sheet will indicate their present investment mandate as well as other important information like annual distribution.

This is an important step for unit trust investors to know the fund managers investment mandate.

The investors should go for investment mandate which they are comfortable with.

Ironically, some investors always complain that they do not what the fund manager invest in but the fund fact sheet can be easily found in the internet. That’s beauty of technology.

7. Emotional

Many investors become emotional whenever their investment value become less than their investment capital.

This is mainly due to them making irrational investment decisions such as forgetting their long term goal (retirement) and redeem all their unit instead of doing dollar cost averaging.

In fact, they should check their unit trust fund fact sheet to see the investment mandate is still sound. Or else it is due to the unsystematic risk (pandemic, change government policy, currency rate and so on).

If they perform dollar cost averaging for the next three to five years, their investment value will become more than their investment capital.

It is simply due to the lower unit cost holding, getting the reinvest distribution unit and last and not least, an increase of the unit price of that particular unit trust fund.

Hence, the above example normally is called behaviour gap according to Carl Richard. It is the difference between the actual rate of return based on rational decision and emotional investment decision.

8. Slow in making investment decisions

Some of the investors tend to be afraid or worry too much to make investment decision whether to invest in unit trust.

They worry it will be too slow to earn money, costly , etc.

These reasons have stopped them or delay them in making certain decisions in order to achieve their long term goals.

They are totally forget about the compound interest impact in the long term and they can actually leverage this effect to achieve their goals.

Also, the unit trust funds are managed by professional fund managers.

In a summary, look at the benefits of unit trust investment and avoid the common mistakes for the sake of your long term financial goals.

Kenney Khew is a licensed financial planner from Phillip Wealth Planners Sdn Bhd. He is also the immediate past chairman of FPAM Johor Chapter. He can be contacted at

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