Eight Principles Of Successful Unit Trust Investing


Unit trust investing is a convenient and sensible way to build one's wealth in the medium and long term. Investment specialists will manage the investments and spread the risks through careful diversification. There are eight principles which are helpful to you in making a wise decision in unit trust investing.

PRINCIPLE 1 : Know The Basics

What Is A Unit Trust And How Does It Work?

A unit trust is a professionally managed investment fund which pools together the money of investors who have similar objectives. The total sum is then invested in a diversified investment portfolio comprising stocks, bonds and other assets in accordance with a fund's investment objective. The unit price of a fund is its net asset value (NAV), derived from its assets less its liabilities and divided by its total number of units. Unlike stocks, whose prices are changed at each trade, a fund's NAV is based on the closing prices of the stocks in its portfolio on each trading day.

To protect your rights and interests, an independent trustee will ensure that the unit trust fund manager like us complies with the requirements of the deed, Capital Markets And Services Act 2007, the SC Guidelines and the Securities Commission Act 1993.

What Is A Typical Unit Trust Fund Investor Profile?

A typical unit trust fund investor profile would be individuals who/corporations that:
•  have a similar investment objective as a fund.
•  are willing to take some form of risk through participation in the stock market and/or fixed income market.
•  want to hold investments that are liquid and easily redeemed.
•  want to enjoy a lower transaction cost while investing in the stock market.
•  want to have a well diversified investment portfolio which is professionally managed.

What Are The General Benefits Of Investing In A Unit Trust Fund?

•  Diversification - For any given amount of investment return, investment risks may be spread over a wide variety of securities in different countries, sectors and securities for a small investment sum. On your own, this will normally require a large amount of effort and capital.

•  Professional fund management - A fund's pooled resources makes it cost-effective to engage a team of qualified and experienced in-house investment professionals such as our fund manager. We conduct full-time regular investment research and analysis and make on-site visits to gain greater insights into the investments that a fund holds. We also invest in research facilities and information resources essential for making sound investment decisions.

•  Liquidity - We stand ready to repurchase all or part of your unitholding on any business day.

•  Hassle free - It is convenient to buy and sell investment units and you are spared the time, trouble and expense of researching and monitoring investments on your own if you are to invest directly in the stock market.

•  Affordability - Only a relatively small amount of money is needed to participate in a professionally managed portfolio of investments. For personal direct investments, you will have to invest considerably more in order to have the same reach in investment opportunities and to benefit from the same level of expertise in portfolio management.

Risk Factors

•  Company specific risk - This risk refers to the individual risk of the respective companies issuing securities. This risk could be a result of changes to the business performance of the company, consumer tastes and demand, lawsuits, competitive operating environment and management practices. Developments in a particular company which a fund has invested in would result in fluctuations in the share price of that company and thus the value of a fund's investments. This risk is mitigated by diversification in a portfolio comprised of stocks of many companies.

In addition, this risk may occur when an investee company's business or fundamentals deteriorate or if there is a change in management policy resulting in a downward revision or even removal of the company's dividend policy. Such events may result in an overall decrease in dividend income received by a fund and possible capital loss due to a drop in the share price of a company that cuts or omits its dividend payments. This risk may be mitigated by investing mainly in companies with a consistent historical record of paying dividends, strong cash flow, or operating in fairly stable industries.

•  Concentration risk - This is the risk of a fund focusing a greater portion of its assets in a smaller selection of investments. The fall in price of a particular equity investment will have a greater impact on the fund and thus cause greater losses. This risk may be mitigated by the unit trust fund manager conducting even more rigorous fundamental analysis before investing in each security.

•  Country and/or foreign securities risk - This risk refers to the risks of investing in foreign markets. Emerging markets may have relatively underdeveloped capital markets, less stringent regulatory and disclosure standards, concentration in only a few industries, greater adverse political, social and economic risks and general lack of liquidity of securities. The risk of expropriation, nationalisation, exchange control restrictions, confiscatory taxation and limitations on the use or removal of funds also exist in emerging markets. Emerging markets may also have less developed procedures for custody, settlement, clearing and registration of securities transactions. Developed markets while not possessing similar levels of risks as emerging markets, may experience risks such as: changes in economic fundamentals, social and political stability; monetary policy and currency fluctuations. This risk may be mitigated by conducting thorough research on the respective markets, their regulatory framework, economics, companies, politics and social conditions as well as minimising or omitting investments in markets that are economically or politically unstable or lack a regulatory financial framework and adequate investor protection legislation.

•  Credit and default risk - Credit risk relates to the creditworthiness of the issuers of the debt instruments and their expected ability to make timely payment of interest and/or principal. Any adverse situations faced by the issuer may impact the value as well as liquidity of the debt instrument. In the case of rated debt instruments, this may lead to a credit downgrade. Default risk relates to the risk that an issuer of a debt instrument either defaulting on payments or failing to make payments in a timely manner which will in turn adversely affect the value of the debt instruments. This could adversely affect the value of a fund.

•  Currency risk - As the investments of a fund may be denominated in currencies other than the base currency, any fluctuation in the exchange rate between the base currency and the currencies in which the investments are denominated may have an impact on the value of these investments. Investors should be aware that if the currencies in which the investments are denominated depreciate against the base currency, this will have an adverse effect on the NAV of the fund in the base currency and vice versa. Investors should note that any gains or losses arising from the fluctuation in the exchange rate may further increase or decrease the returns of the investment.

•  Dividend policy risk - This is a risk particular to a fund which has heavy focus on high dividend yielding stocks. This risk may occur when the company's business or fundamentals deteriorate or if there is a change in the management policy resulting in a lower or even a removal of the company's dividend policy. This risk may be mitigated by investing mainly in companies with a consistent historical record of paying dividends, strong cash flow or operate in fairly stable industries.

•  Expectation risk - This risk refers to the fact that the following circumstances may lessen the prospects for recovery:
- An unexpected serious global economic downturn.
- A company's proposed restructuring plan fails for various reasons.
- Management's inability to turn around the company within a reasonable period of time due to factors beyond their control.
- The initial cyclical nature of the problem becomes structural. A structural issue refers to internal or external issues that have a longer term or permanent adverse impact on a company's business as opposed to a cyclical issue which would only temporarily affect the business during a down cycle.


Should a recovery situation not turn out as expected due to the above reasons, there may be a loss or reduction of profits/income resulting in a reduction in a fund's assets. This risk may be mitigated by a thorough study of potential recovery situations (economic, industry and company specific) taking into account the favourable probability of a positive outcome, risks and returns before making any investment in such situations. Continuous monitoring of developments in potential recovery situations may be conducted to ensure that these pan out as expected.

•  ETF risk - Exchange traded funds (“ETF”) are collective investment schemes designed to track a particular index or portfolio of securities, and are listed on a stock exchange. The following are the key risks of investing in ETF:
 
▪  Tracking error
  ETF are in general, designed to track or replicate the performance of a particular index. However, exact replication may not be possible owing to factors such as:
 
i)  fees and expenses of the ETF;
ii)  foreign exchange movements;
iii)   the ETF may not have been constructed to be exactly the same as the index, thus resulting in differences between the weighting of securities in the index and the ETF. This is due to the fact that certain securities in the index may have been omitted from the ETF’s holdings or securities not in the index may be included in the ETF. Consequently, there is some divergence between the return of the ETF and the index; and
iv)   corporate actions such as rights issues.
▪   ETF trading at a premium or discount
  ETF are traded on both a primary (not a publicly traded market and only via participating dealers) and secondary market (generally on a stock exchange). While the NAV of the ETF is a key factor influencing the price of the ETF, it is also determined by the investors’ supply and demand on the secondary market. Thus, an ETF may be traded on the secondary market at a price that is a discount or a premium to the net asset value (NAV) of the ETF portfolio. This discrepancy may be accentuated in uncertain or volatile financial/economic conditions.

  The ETF tracking error risk is mitigated by the unit trust fund manager by selecting ETF which have a lower tracking error to reduce the possibility of larger divergence of returns versus the index tracked. The criteria used in determining ETF with lower tracking error are the expense ratios of the ETF and the extent to which an ETF tracks its index. The second risk is reduced by focusing on ETF that generally trade at narrower premiums or discounts to the NAV – to ensure that no excessive premiums are paid upon purchase and the ETF are not sold at significant discounts upon exit.
   
•  Futures risk - As futures are conducted on an initial margin basis, a relatively small price movement in a futures contract may result in an immediate and substantial loss (or gain) for a fund. Adverse price movements can create additional losses over and above the initial futures contract costs. This risk may be mitigated by entering into futures contracts only for hedging purposes. Specifically, a fund will only enter into futures sales contracts to hedge against declines in the value of stocks in the portfolio.

Futures contracts can play a part in reducing the risk of a fund's investment portfolio by providing a hedge against shorter-term volatility of financial markets. However, futures carry certain additional risks which if not properly managed can result in significant losses or underperformance. These include:


Futures
liquidity risk
This category of risk includes:
- Risk that fair price or firm bid cannot be obtained from a market counterpart;
- Risk that funds are unable to unwind illiquid positions; and
- Market price stability affecting funds' ability to meet margin payments.

Gearing risk Futures contracts may involve a high degree of "gearing" or "leverage". This means that a small movement in the price of the underlying asset may have a very large magnifying effect in the price of the futures contracts, in both an upward or a downward direction.

Mismatch
risk
Risk that arises when the terms of underlying investments and the instrument used to hedge its risks do not match. Such mismatches could be due to:
- Mismatch of derivative parcel size (or multiple of this) versus actual physical portion.
- Mismatch of maturity, e.g. 3-month KLIBOR interest rates futures contract versus 1-year bond holding.
- Mismatch of component constituting an index, e.g. FTSE Bursa Malaysia KLCI Index (FBM KLCI) versus actual equity portfolio of fund.
•  Inflation risk - This is the risk that investors’ investment in a fund may not grow or generate income at a rate that keeps pace with inflation. This would reduce investors’ purchasing power even though the value of the investment in monetary terms has increased.

•  Interest rate risk - This risk refers to the effect of interest rate changes on the market value of a bond/sukuk portfolio. In the event of rising interest rates, prices of fixed income securities / sukuk will generally decrease and vice versa. Debt securities / sukuk with longer maturity and lower coupon/profit rate are more sensitive to interest rate changes. Interest rate movements can lead to fluctuations in bond / sukuk prices resulting in fluctuations in the value of a fund. In terms of sukuk, particularly those based on contract of exchange such as Murabahah BBA and Ijarah, any fluctuations in conventional interest rates will also affect the indicative/profit rates of these sukuk, hence, will also lead to a rise or fall in prices of sukuk. This risk will be mitigated* via the management of the duration structure of the portfolio of debt securities / sukuk.

The interest rate is a general indicator that will have an impact on the management of funds regardless of whether it is a Shariah-compliant unit trust fund or otherwise.

 *

The duration of the fixed income portfolio or the fixed income / sukuk portfolio segment will be kept low by buying more short-term to medium-term fixed income securities / money market instruments / sukuk. The value of these short-term to medium-term fixed income securities / money market instruments / sukuk are less sensitive to interest rates movements – i.e. in the situation where interest rates rise, their values, as compared to investments with a long duration, will fall less if at all.


•  Liquidity risk - This risk occurs in thinly traded or illiquid securities. If a fund needs to sell a relatively large amount of such securities, the act itself may significantly depress the selling price resulting in a decrease in the value of a fund's assets. As such, a fund is managed in such a way that a portion of the investments is in equity securities and money market instruments that are highly liquid and this allows a fund to meet sizeable redemptions without jeopardising potential returns. 

•  Manager’s risk - This risk refers to the day-to-day management of a fund by the unit trust fund manager which will impact the performance of the fund. For example, investment decisions undertaken by the unit trust fund manager, as a result of an incorrect view of the market or any non-compliance with internal policies, investment mandate, the deed, relevant law or guidelines due to factors such as human error or weaknesses in operational process and systems, may adversely affect the performance of the fund.

•  Market risk - This risk refers to developments in the equity market environment which typically includes changes in regulations, politics, technology and the economy of the country. Market developments can result in equity market fluctuations which in turn affect a fund's underlying investments and hence its unit price. In terms of a fund’s concentration in a single equity market*, this risk is reduced by undertaking active* asset allocation, where in periods of heightened risk, there will be greater allocation in fixed income securities / sukuk and Islamic money market instruments and cash. Where a fund is invested in multiple markets, a higher, if not, full allocation will be in markets that have a track record of economic, political and regulatory stability – allocation between markets and asset classes will also help mitigate risk.

 *

This refers to a fund having the mandate to invest in only one country (i.e. Malaysian market). For example – in the event of a fall in Malaysian equities, a fund cannot diversify into equities of other countries to mitigate equity market risk but can shift (asset allocate) its investments to local fixed income securities / sukuk and Islamic money market instruments. The term ‘active’ refers to the fund manager periodically adjusting equity allocations (and by default fixed income securities / sukuk and money market allocations) depending on market situations rather than passively leaving allocations to fluctuate based solely on market prices.


•  Non-compliance risk - This risk refers to the risk that the unit trust fund manager does not adhere to legislation or guidelines that govern the investment management and operations of a fund or to a fund's investment mandate stated in the deed. This risk also concerns non-compliance with internal operating policies and the unit trust fund manager acting fraudulently or in a manner that is unfair to unitholders. This risk could result in disruptions to the operations of a fund and potentially lead to reduced income/gains or even losses to unitholders. The unit trust fund manager has in place stringent internal policies and procedures to ensure a fund is managed to the full benefit of investors and in compliance with the relevant fund regulations or guidelines. There is also separation of fund management duties such as investment decision making, execution of trades and accounting for/valuation of such trades. A compliance team is in place to monitor such operational and investment activities.

•  Participatory Notes (P-Notes) risk - A P-Note is a market access financial instrument that replicates the financial return of an underlying asset - for example, equity securities. P-Notes issued by financial institutions, can either be listed on a stock exchange or unlisted and are generally denominated in USD. Investors of P-Notes enjoy the rights to corporate actions including dividends, rights issues, bonus shares and mergers which usually does not come with voting rights. P-Notes are in general issued for securities traded in restricted markets (such as India, Taiwan and China) where there are one or more complicated and time-consuming administrative hurdles such as foreign exchange controls, controlled regulatory environment and requirement for local licensing for securities trading, among others. P-Notes bear the risk of the single issuer of the instrument, specifically the potential insolvency of the issuer of the P-Note. This risk will be mitigated by investing in P-Notes issued by a globally renowned financial institution with a good investment grade credit rating by Standard & Poor’s or Moody’s or Fitch or any other global credit rating agency. P-Notes also carry with it risks inherent in the underlying asset which it replicates, such as country and/or foreign security risk, foreign exchange risk and market risk. These risks will be mitigated by conducting extensive overall market and macro-economic analysis, as well as fundamental security research and by spreading investments in different sectors to reap the benefits of diversification.

•  Real estate investment trusts (REIT)-related risk -  The value of REIT can fluctuate up or down depending on market forces, the general financial and real estate markets and the interest rate environment, among other factors. A fund which invests in REIT will also be subject to the risks associated with direct ownership of real estate, whose values can be adversely affected by increases in real estate taxes, government policy restricting rental rates, other changes in real estate laws, rising interest rates and a cyclical downturn in the real estate market. In selecting REIT, a fund manager will undertake detailed analysis, selecting REIT with a consistent track record, run by reputable managers from the property sector, owning properties with income and/or growth potential which are located in countries with a stable economic, political and regulatory environment.

•  Reclassification of Shariah status risk - This risk refers to the risk that the currently held Shariah-compliant equities in a Shariah-compliant fund may be reclassified as Shariah non-compliant in the periodic review of the equities by the SACSC, the Shariah adviser or the Shariah boards of the relevant Islamic indices. If this occurs, the Manager will take the necessary steps to dispose such equities. There may be opportunity loss to the Shariah-compliant fund due to the Shariah-compliant fund not being allowed to retain the excess capital gains derived from the disposal of the Shariah non-compliant equities. 

•  Reinvestment risk - This is a risk that future proceeds (interest/profit and/or capital) are reinvested at a lower interest/profit rate. Reinvestment risk is especially evident during periods of falling rates where the coupon/profit payments (from existing fixed income / sukuk investments) are reinvested at less than the yield to maturity (actual profit rate) at the time of purchase. Such risk may be mitigated by purchasing zero coupon (deep discount) debt securities / sukuk which do not pay profits and holding these debt securities through duration management / holding these sukuk to maturity (note however, there is still reinvestment risk upon maturity of the zero coupon sukuk). Risk is also potentially reduced by duration* management – i.e. increasing duration of the sukuk segment where rates are falling or expected to fall, and vice versa.

* Duration is used as a measure of sensitivity to profit rates, which takes into account the maturity and profit rate of a sukuk.

•  Stock specific risk - This risk refers to prices of a particular stock may fluctuate in response to the circumstances affecting individual companies such as adverse financial performance, news of a possible merger or loss of key personnel of a company. Any adverse price movements of such stock in a fund will adversely affect the fund’s NAV.

•  Structured products risks - Structured products are financial instruments that generally offer capital protection if held to maturity and whose yields or returns are tied to one or more global or local securities or derivatives, which include single or a basket of equity securities or equity indices, options, debt securities, commodities futures, currencies and possibly equity or interest rate swaps. A key risk is potentially high downside price fluctuations (relative to traditional investments) owing to the use of derivative instruments which can amplify market movements of the underlying index or investment used and thus adversely affecting the valuation of the structured product. Another key risk is counter party risk i.e. where the issuer of the structured product is unable to make payments or repay obligations in a timely manner and thus leading to a lower or even zero valuation. The risk of higher volatility is managed by undertaking in-depth fundamental and technical analysis of the securities or derivatives that will be employed to provide returns while counter party risk will be mitigated by ensuring that the counter party / issuer of the structured products carries a minimum A1 rating by RAM Rating Services Berhad or its equivalent. For Islamic structured products, the instruments used for the same must comply with Shariah requirements.

•  Timing of asset allocation risk - This is the risk that, given the prevailing economic and financial market conditions, the unit trust fund manager makes the inappropriate asset allocation decisions between equities and fixed income securities / sukuk, potentially resulting in lower returns to a fund. To mitigate such risk, the unit trust fund manager conducts vigorous fundamental macro research and technical analysis. Factors such as economic conditions, interest rate environment, valuations of markets, liquidity, and investor sentiment are taken into account before making asset allocation decisions.

•  Warrants and options risk - Warrants and options are a leveraged form of investment. A movement in the prices of the equity securities of the warrants and options will generally result in a larger movement in the prices of the warrants and options themselves, that is, higher volatility. The geared effect implies substantial outperformance when the prices of equity securities rise. Conversely, in a falling market, warrants and options can lose a substantial amount of their values, far more than equity securities.

  Warrants and options have a limited life and will depreciate in value as they approach their maturity date. If a warrant's exercise price is above the share price at any time during its remaining subscription period, the warrant is effectively "out of the money" and theoretically has little value. Warrants that are not exercised at maturity become worthless.

Warrants and options do not participate in dividends or cash flows that accrue from the underlying equity securities.

This risk may be mitigated by conducting extensive fundamental analysis of the warrants' equity securities to ensure their viability as an investment for a fund. The percentage allocation of warrants held by a fund will generally mirror the allocation of the equity securities, that is, higher when there is an anticipated market rise and vice versa.

Privately negotiated over-the-counter (OTC) options that are not traded on an exchange or through a broker, are subject to the credit or counterparty risk of the issuer of the option. The risk level will be dependent on the financial standing and creditworthiness of the party issuing the options and their ability to fulfil the terms of the options contract. Thus, any default by the issuer will have an adverse impact on a fund’s NAV. To mitigate this risk, only OTC options offered by issuers such as financial institutions with at least a credit rating of AA by RAM Rating Services Berhad or A by Standard & Poor’s or their equivalent by any other recognised rating agency will be considered.

Should the counterparty’s credit rating fall below the minimum as stated subsequent to entering into an OTC option, all option positions with the counterparty will be unwound within three months of the credit rating downgrade, subject to the unwinding of the position being in the best interests of the fund.

How Do Unit Trusts Compare With Direct Investments In The Stock Market And Bank Deposits?

If a person has a very large amount of money to invest directly in individual stocks, they may be able to achieve a sufficient level of diversification. Losses in one or more of their stocks may substantially reduce the value of their portfolio. A unit trust fund, however, has a diversified portfolio and losses in some of the stocks will probably be offset by gains in other stocks. Nevertheless, a person with an undiversified portfolio may reap great returns if one or more of the stocks increase in value. Unit trust prices rise more gradually when some of its stocks rise in price because unit prices are based on the total value of the portfolio. Bank deposits are generally safe with low risk of capital erosion. The returns are however usually lower than investments carrying more risk and may be eroded by inflation more significantly. Unit trusts have historically yielded better returns than bank deposits but such investments carry more risks of loss.

The equivalent Islamic instrument for fixed deposits is General Investment Accounts. 

Management Expense Ratio (MER)

MER will inform the investor of the total annual expenses incurred by a fund as compared to its average NAV. Management expenses include management fee, trustee fee and expenses incurred for fund administrative services. A low MER indicates the effectiveness of the unit trust manager in managing the expenses of the fund.

MER = Total annual expenses incurred by the Fund x 100
            ___________________________________
                   Average net asset value of the Fund

Performance Indicators/Benchmark

Investors measure the performance of their investments in unit trusts by various means, and very often take into account pure price changes (rise or fall in unit prices) or the amount of distributions received from a fund. The appropriate method of calculating performance is by including both. This performance measure is called total returns as it includes all sources of income and gains (or losses). Investors need not compute these calculations themselves as total returns figures are published weekly in leading financial magazines, local daily newspapers and foreign financial publications, or the websites of the financial institutions concerned. For a better picture of a fund's performance, you may look at both short (three to six months) and longer-term (three and five years) performance figures. Performance benchmarks such as the FTSE Bursa Malaysia KLCI Index (FBM KLCI), FTSE Bursa Malaysia EMAS Index and FTSE Bursa Malaysia EMAS Shariah Index are used to measure the relative performance of equity funds. For global investments, benchmarks such as the MSCI All Countries World Index, MSCI Asia Pacific Ex-Japan Index and Dow Jones Islamic Market World Index are used. The performance benchmarks for bond funds are the fixed deposit rates or General Investment Account (GIA) rates (one year) as quoted by a major Malaysian financial institution. The performance benchmark for balance funds is a combination of the performance benchmark for equity funds (e.g. FBM KLCI) and the benchmark for bond funds (e.g. fixed deposits rates), in a ratio that reflects the funds' general asset allocation. For example, a balance fund with a 60% equity allocation mandate would be compared against a composite benchmark comprising a hypothetical investment of 60% in FBM KLCI and 40% in 3-month Kuala Lumpur Interbank Offer Rate (KLIBOR) rates. Other fund categories such as equity and income funds may also adopt composite benchmarks to properly reflect their maximum equity asset allocation ratio.

Who Regulates Unit Trust Funds In Malaysia?

The Securities Commission Malaysia regulates the establishment and operations of unit trusts in Malaysia under the Capital Markets And Services Act 2007, Securities Commission Act 1993, the Securities Commission Malaysia Guidelines and other relevant securities law. This requires, among other things, that the unit trust fund manager and the trustee create a deed and register it with the Securities Commission Malaysia. A copy of the deed may be inspected at the unit trust fund manager's office.

In addition, the Securities Commission Malaysia has placed stringent requirements in the appointment of the unit trust manager, the trustee, the unit trust manager's directors, chief executive officer, investment committee member and Shariah Committee Members/Shariah Advisers. The appointment of all these parties must be approved by the Securities Commission Malaysia. For appointments that do not require the approval of the Securities Commission Malaysia, the unit trust manager must notify the Securities Commission Malaysia within the prescribed period.

PRINCIPLE 2 : Know Yourself

It is conventional wisdom that you should be willing to accept more risk if you are looking for higher return, or be happy with less return at lower risk. There is however some flexibility in planning to meet your needs and preferences. Answers to the following questions can serve as a guide to choosing the most appropriate funds for investment:

- What stage of the life cycle am I at now?
- What are my investment goals?
- What kind of returns am I looking for?
- How much risk am I comfortable with?

PRINCIPLE 3 : Investment Strategy

Most unit trusts work best when taken as an investment vehicle for the medium to long term. Funds selected for investments should be appropriate for your investment horizon, financial goals and risk profile. Attention should also be given to hedging against inflation and achieving a good degree of diversification. Circumstances may change and you should review your strategy regularly.

PRINCIPLE 4 : Start Early

The power of compounded returns (returns generating more returns) makes it wise to start saving and investing as early as possible. There may still be the risk of decline in the capital value of investment, but a longer investment horizon will certainly give more room for riding out the bad times or the occasional setbacks.

PRINCIPLE 5 : Invest Regularly

Regular investments have benefited in many cases from the principle of Ringgit cost averaging. Instead of trying to time the market, which even the experts have difficulty achieving, invest a fixed amount regularly especially when such surplus has been budgeted from a regular stream of income. This practice of investing regularly has a tendency to average out wild fluctuations in prices to your benefit.

PRINCIPLE 6 : Invest For The Medium To Long Term

Historically, unit trusts have provided better returns in the longer term, but have entailed greater short-term risks than other savings vehicles. Your planning and expectations must accordingly be attuned to a longer investment horizon. Unit trusts offer potentially higher returns over the longer term although they do present wider fluctuations in the short run.

PRINCIPLE 7 : Diversify Your Portfolio

Diversification, or spreading your investments among the various fund options can help ride out interim fluctuations. It works because the different asset classes have different fundamental characteristics and can move in different directions. For example, when the economy faces a downturn and interest rates are falling, bonds will usually outperform equities, whereas when the economy is booming, equities will generally outperform bonds. In the long run, diversification increases returns while lowering risks, which is why it is the single most important part of any investment strategy.

PRINCIPLE 8 : Make Adjustments Over Time

Review your investments regularly to ensure that they still reflect your financial goals and personal circumstances. For example, at one stage of your life you might be seeking longer-term investment that focuses on building savings and accumulating capital. Later on, you might prefer a lower-risk investment that places more emphasis on income. Whatever the reason, making adjustments over time is essential and needs to be incorporated into your investment strategy. Through regular monitoring you can ensure that your investment portfolio continues to match your financial objectives.