20 Dec 2006 | Comments | investment | Comments feed

Are Unit Trusts Lousy Investment?

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Before you read this post, make sure you had read this:
Why Mutual Funds Are Lousy Long-Term Investments

I couldn’t agree more with the article. For your information, I am a big fan of Robert T. Kiyosaki. I read most of his books.

The article concludes that “are you an active investor or passive?”.
If you are an active one, unit trust is really not your piece of cake.
If you are a passive investor, is there any other better choice than unit trust?

Besides the initial 3-7% service charges which most contribute to the consultant’s commission and incentive trip for agent, there is trustee fees and management fees charged every year and calculated daily. Unit trust company earn big portion from the management fees - normally 1.5% p.a. depends on fund type.

In order to make better gain and profit, unit trust company must increase their fund size or asset under management, which is through:
1. increase fund size by making more sales through their agent force.
2. launch new fund to attract more investors.
3. make sure the existing fund grows with proper investment strategy.

I consider it i a win-win situation. When the funds appreciate, investor wins with higher return, unit trust company also wins because they can earn more management fees.

It is true to say that unit trust company makes more but the investor contribute the capital and bear all the investment risk. Let’s think about McDonald for a minute. McDonald is a very profitable company, while franchisee contribute the capital and bear all the investment risk, even the consumers bear the health risk! All businesses should make big profit, don’t you agree?

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