Are Unit Trusts Lousy Investment?

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?

If you enjoyed this article, subscribe below to get free email updates!

20 Comments

  • Relax

    Reply Reply August 13, 2007

    Got pros and cons.

    Small investors can achieve stock diversification easily with fund.
    They do not have the capital to do so directly with stock.

    I think it depends on one’s strategy and goals (and maybe know-how and know-who).

  • joey

    Reply Reply April 3, 2008

    HI there !

    For your information i already do online switching.Actually unit trusts today is more than that and everytime i had the Best fund from many reputable company for me to offer, equip with asset rebalancing .

    • KCLau

      Reply Reply April 3, 2008

      Hi Joey, where are you from?

  • Wong

    Reply Reply September 4, 2009

    How about for people who never know how to invest in stock market? They will scare to death (heart attack)….keeping the money in the bank is the ‘safest’ place. But over the long term, inflation will win the race: Money value will depreciate. (FD ~3% – Inflation of ~5% = neagtive ~2%)

    HOW to overcome this problem? Mutual fund, over the long-term is considered a liquid investment tool to hedge (or at least keep the money value). The most important KEY: DIVERSIFIED your portfolio (FD, UT, Stock, GOLD, house, KNOWLEDGE, etcs)

  • joe

    Reply Reply September 7, 2009

    I am a fan of RK but his article on “Mutual funds as lousy investment” is misleading.

    Article is misleading. The claim that the mutual fund company is keeping 80% is misleading. FYI, the average NET of fee return is 8%. It should read that in this example, the investor is missing out on 80% of the possible return over this time period. The mutual fund (according to this example) is getting 2.5%… not 80% of the potential return. It’s simple math. Also, it is misleading to say that indexes are better than funds. Some are, but most are not. A mutual fund that consistantly underperforms against its index will eventually be closed due to lack of investors. In reality, it is not difficult to find a mutual fund that consistantly outperforms its respective index. Keep in mind, when you buy an index fund, you buy the bad with the good. Most mutual fund do an excellent job at screening for quality companies. Finally, some mutual funds have expenses illustrated in this article. Many do not, they are much lower. Regardless, who cares what the cost is as long as there is a better than average net return on your investment. For example: If you had a black box, and on one end of that black box you were able to put in a dollar and after a year on the other end of the box it spit out two dollars. Now I ask you, do you really care what happened inside of that box? Not as long as twice as much money continues to come out of the other end. Mutual funds are not different. Mr. Kiyosaki, I’m a fan. But I am extremely disappointed in you for publishing this article.

  • dya

    Reply Reply October 4, 2009

    so now what are the best way or place to invest?
    can you all decide by read all the articles….

  • ben

    Reply Reply November 3, 2009

    i agree with you.. the article from RTK is just for those who expert on stock market only.
    for normal investor, mutual fund is the best investment

    just my 2 cents

  • ALvin Lee

    Reply Reply April 27, 2010

    Never ever invest in unit trust…simply because invest in bank share is far more better invest in bank product. Public Bank share recorded 18% compounded ROI per year (excluding dividens) since last 20 years. Can the PBB products giving this type of ROI? Further more buying share has much much more lower cost.
    Same thing to MBB, recorded about 15% compounded ROI (except last 2 years due to doing some national service by acquired bank in Indonesia and Pakistan)…

    So buying UT better or buying bank share is better?? You decide…

  • netmask8

    Reply Reply June 3, 2010

    Greetings & G’Day,

    I agreed that buying financial/bank stocks in M’sia(e.g PBB,MBB,CIMB) are much better ROI compared to unit trusts.. Invest(Buy) in RM and later 5-8 years Pullout(Sell) in RM. Ratio Returns / Loss = 1:1

    Will be better if you invest in USA / Europe markets? E.g Bank of America(BAC), Citigroup(C), JP Morgan(JPM), Las Vegas Sands(LVS), Beazer Homes USA(BZH), ETrade Financial(ETFCD) ..etc .. Their divident payouts were in USA currency.. Any single price movement(uptrends/downtrends) will have huge impacted due to currency conversion rates.

    How to know when to pour in your money in stock investment?
    e.g Read / Understand many financial reports(cashflows/balance sheet ..etc) through magazine/books. Basic step is by seeing the central banks(Federal Reserves/BNM/Central Bank ..etc) hike / reduce interest rates . They will hike interest to cover inflation during good/hot economies or vice-versa during asian financial crisis/credit crunch / deflation ..etc

    Have a great day. Enjoy Learning !!

    • KCLau

      Reply Reply June 11, 2010

      thanks for the insights. Most local equity fund invest in banking stocks too.

  • Junemyy

    Reply Reply June 6, 2010

    Dear Mr. KC Lau…I am a Robert Kiyosaki enthusiast as well. However, I find it is OK to pay all the fees to any UNIT TRUST management companies for their effort to create opportunities for small investors to experienced investment into many porfolios in the market. Serves the purpose as a collective investment scheme… Unit Trust also can achieve to double of quadruple your money in less than 5 years….it’s ok. It doesn’t matter what investment tools you use to drive your money, we still belong in the same Quadrant, the ‘I’ quadrant rite…pls becareful not to publish any misleading article such as this… indirectly you are saying that all 5 million unitholders in malaysia, EPF, Bank Negara, FIMM, Banks as MONEY IDIOTS lh…K.

    • KCLau

      Reply Reply June 10, 2010

      of course unit trust is useful.

  • Shy

    Reply Reply September 27, 2010

    Although people read Robert Kiyosaki, but unfortunately they still did not get the gist on what he is trying to say and tell his readers. He did not say whether is useful or not, what he did instead was to point it out to you guys how fund managers use your money to cover their fees where if you do the math, you are covering for 100% of the risk while getting back 20% of the return for after donkey years. If you still think this type of return is a good investment, go ahead and invest. To some people these are poor choice of investment indeed mainly because your money is continously being siphoned out as ‘fee’ to the fund managers. So if you are ok with the ideas of people using your money where you cover majority of the risk but get back only small chunk of returns, then I guess unit trusts is for you.

Leave A Response

* Denotes Required Field

 Subscribe to My Newsletter