We clarify prevalent myths surrounding investing by providing accurate insights and practical explanations, enabling investors to approach financial decisions with greater clarity, confidence, and long-term perspective.
Who Should Invest in Unit Trusts?
Unit trusts (mutual funds) suit investors who lack time, expertise, or capital to select individual investments, offering professional management and diversification. Different funds carry varying risk and return profiles, so investors should choose a unit trust that aligns with their financial goals and personal circumstances.
What is a Unit Trust?
Known as unit trusts or mutual funds, these investments pool small contributions from many investors into one fund. The money is diversified across assets, professionally managed, with returns shared according to units held. Assets are safeguarded by an independent trustee.
What are Unit Trust Investment Benefits?
Unit trusts are popular because they offer cost-effective access to diverse investments such as government securities, debentures, and shares. By pooling funds, investors gain diversification, share gains and losses proportionately, and benefit from professional portfolio management that is difficult for individual investors to replicate.
What Should I Know Before Investing?
What is my investment objective?
How much risk am I willing to take?
Am I prepared to lose money in order to gain more profit?
How long is my investment horizon?
Will I need to take back my money in a short while urgently?
How Do Unit Trusts Make Returns?
Capital growth: The value (price) of the shares or underlying assets may increase and may be sold for more than the price at which they were bought.
Income: The underlying assets may earn interest or dividends, which can either be redeemed or reinvested back.
Are Unit Trusts Regulated?
A unit trust is structured as a trust with a sponsor, trustee, unit trust management company, and custodian. Investors benefit from regulation and transparency. A trustee safeguards assets and monitors transactions, while the Securities and Exchange Commission of Sri Lanka licenses and regulates unit trusts.
What is Net Asset Value?
A Sri Lankan unit trust’s performance is measured by its Net Asset Value (NAV), which represents the market value of the fund’s underlying assets. As asset prices change daily, the NAV also fluctuates. NAV per unit is calculated by dividing total asset value by the number of units outstanding.
How Do I Redeem My Investment?
A redemption is when you sell some or all of the units that you own in a Unit Trust portfolio, and the proceeds are paid into your nominated bank account. Some funds may charge you an Exit Fee, upon redemption. Please ask your advisor or revisit the Explanatory Memorandum which details the Unit Trust.
Can I Open Unit Trusts for Someone Else?
Yes, you are able to open a Unit Trust account in the name of minor or another investor. As the investor, you are required to sign all instruction forms. If the account is opened in the name of a minor, a parent or guardian is required to sign all instructions until the child reaches the age of 18.
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