Why unit trusts make viable investment options in jittery market

The current environment emanating from Covid-19 has had huge and adverse impact on both the demand and supply chain.

Financial institutions, such as banks and insurance firms, with the support of their respective regulators, have come up with programmes aimed at cushioning customers from the current economic slump.

These include extension of loan terms or issuance of loan and premium repayment holidays meant to offer relief to people who may be experiencing financial difficulties in honouring their contractual obligations.

Usually, the market demands some level of certainty and stability, but the current environment reflects neither of these. We do not know when the economic environment will stabilise or if there is going to be a second wave of the spread of the virus or production of a vaccine.

However, in terms of making an entry into the market, it really depends on, but not limited to, your financial position and time horizon. Investors, who probably deemed the market levels prior to the pandemic as pricy, have a higher risk appetite and long-term view, could take advantage of the fall in asset prices.

It is good to understand that the basic tenets of savings and investments haven’t changed, what will change is how we do it.

In the current environment, it’s vital to focus on your financial position and make choices depending on your priorities and goals. You can save or make investments based on your objectives and constraints using the regulated channels in the market.

Investments in unit trusts are informed by risk appetite, risk tolerance, liquidity needs and time horizon. Unit trusts here include equity fund (most risky due to higher allocation to equities), balanced fund (moderately risky due to lower allocation equities) and money market (no allocation to equities).

Open-ended

The choice of a unit trust depends on investor’s objectives, constraints, and financial position. They are open-ended, which means you can invest and withdraw cash whenever you wish.

At times like these, it is important to build up an emergency fund to cater for an unpredictable future such as loss of a job or lack of income. Unit trusts allow you this flexibility. They do not constrict you to a contractual agreement that if broken will hinder you to access any funds.

Invest the lump sum in a money market and build up a fund you can access when the need arises. Nowadays, using your mobile phone, you can invest in the fund of your choice. You just need to know what your goal is, how long you want to invest and if you need to take any risk. 

It is also easy to encash an investment in a unit trust in case you are in urgent need of cash. Within two to three working days, you can get your cash if you write a letter or email requesting to access your cash.

If you need the cash within a few minutes, you can withdraw funds using your mobile phone from your i-invest account. When making an investment decision at a time like this, safety is key. Find out where your money is being invested? Is it readily available?

In recent years, we have seen at least two money market funds that had investments go south, resulting in losses that were borne by the investors. There is no guarantee that will cover those losses for the unit holder.

Thus, before investing, do you trust the brand? Does the firm have a form of history?

- The writer is a portfolio manager, Asset Management, at UAP Old Mutual