Unit Trust:concept & the right frame of mind

Unit Trust is an investment vehicle that pools the financial resources of many individual investors who aim to achieve similar investment objectives.

So how does it work? Ever wonder what the EPF do with all the money from the contributors?And where do they get the money to pay the dividend to the contributors?
Yes, they invest it.

The basic concept of Unit Trust is some what similar, that is they pool the money from individuals and invest it, but of course there are differences between them.

Among them:

Flexibility
Like it or not, you will have to contribute to the EPF if you are working class these days, eventhough you are not satisfied with the dividend they pay out, whereas in Unit Trust, you can choose to buy or not to buy, which fund you want to buy.

Liquidity
You can't take out your money from the EPF unless you reach certain age, or under certain condition (which I will elaborate more later), whereas for Unit Trust you can sell your units and get back ur money anytime you want.

Making losses while investing in unit trust is possible, right?but EPF never pay less than stated in the statement..

The inliquidity of EPF actually help to make the EPF safer than Unit Trust. How?..Because they know how much money will be taken out and when. Therefore, even if they are losing from their investment, they will still be able to pay out the amount required as they can make provision beforehand. So you wouldn't get less money from EPF than what is stated in your statement.

The same can't be said of unit trust. Simply because every fund holder can take out the money,anytime he/she wants, so their funds have to be calculated everyday, in case everyone wants to take out the money,they will still be able to pay out. Therefore if they are making losses in their investment, it will be shown in the unit price, making the fund holder to lose money if they sell at that time.

the right frame of mind

So if you are investing in unit trust for savings, then you shouldn't feel uncomfortable if the unit price is lower than your buying price, simply because you are investing for long term, and you are not selling it at the moment. Instead the drop in price will make you more determined to keep the savings go on, because you don't want to make a loss by sellling now, whereas if the unit price keep going up, you will be tempted to break your savings and sell for profit.

If you are think investing in unit trust are just like investing in shares, then sorry to say it don't work the same way. Speculation don't work in unit trust, and earning quick money should not be the purpose for investing.