CAPITAL MARKETS: Maximising your unit trust returns

 

Unit trust is an investment vehicle that allows you to invest in a variety of asset classes, offering diversification benefits ■ It’s important to select the best of breed unit trust funds tailored to your asset class and target market to optimise your investment porfolio. when comparing investment options, look at both the investment fee and the overall ROI that the investment offers.

Unit trust is an investment vehicle that allows you to invest in a variety of asset classes, offering diversification benefits. However, to get the most out of them, it’s important to select the best of breed funds, diversify your investments globally and invest through channels with lower management fees.

■ When comparing investment options, look at both the investment management fee and the overall ROI that the investment offers

A COUPLE of weeks ago, I met with a middle-aged couple interested in getting serious about achieving financial freedom.

During our initial consultation, they mentioned that their current investments were in the form of unit trusts recommended by a friend, who is an agent.

However, when I inquired about the specific asset classes their unit trust funds were invested in, they struggled to answer and seemed confused.

This is not an uncommon scenario. Unit trust, one of the most popular investment types in Malaysia, is often misunderstood.

Its easy accessibility and affordability makes it a seemingly a friendlier option for beginners compared to more aggressive investments.

The fact remains, there are still many aspects that are misunderstood about unit trust funds. The ease of access masks the complexities.

So, in this article, we are going to reveal five truths about unit trusts that will help investors make better investment decisions.

Misconception 1: Unit trust is a type of investment

Truth 1: Unit trust is an investment vehicle

A common misconception among new investors is that a unit trust is a standalone investment that focuses on a single asset class, such as property, gold or shares.

In reality, unit trust is an investment vehicle that allows you to invest in a variety of asset classes, offering diversification benefits.

Think of it as a basket containing a mix of investments, like equities, bonds, or even real estate investment trusts. This differs from directly buying individual stocks, where you invest solely in the equity asset class.

For example, if you are looking to invest in Malaysia equities, one option is to directly purchase stocks from several Malaysian companies on the stock market.

Alternatively, you can also invest in a Malaysian equity-type unit trust fund. While the unit trust fund is managed by a fund manager, the asset class you are investing in remains essentially the same or similar.

The specific investment vehicle that you choose is not important. What is more important is the underlying asset classes that you choose to invest into, whether it is using unit trust, exchange-traded funds (ETFS), or other vehicles.

For instance, if you purchase

Malaysian equity unit trusts from three different fund houses, you may think that you are diversifying your investments.

But in reality, these Malaysian equity funds, despite being from different fund houses, still concentrate your exposure to a single market segment.

In essence, you are putting all your eggs into one basket, ultimately investing in a single asset class.

Misconception 2: Equity unit trust funds are as risky as other high-risk investments

Truth 2: Equity unit trust funds are much safer than other high-risk investments

Unit trust funds benefit from a third-party trustee structure, which acts as a safeguard by ensuring the fund’s assets are held on behalf of investors and invested according to the trust deed.

Compared to many other investment schemes, unit trusts are indeed much safer.

Why is that? To illustrate this, let’s take a look at the accompanying diagram.

There are three parties involved in a unit trust fund in Malaysia. The first party is the unit holder, which is you.

Let’s say you invest RM100,000 capital through your fund manager. The money does not actually go into the fund manager’s bank account; it goes into a trustee account, which duty is to hold and protect your capital.

The fund manager is responsible for identifying which equities to allocate the capital to, while the trustee buys and holds the shares according to the fund manager’s instructions.

The beauty of this unit trust model is that it protects your investment.

Even if the fund manager hypothetically goes bankrupt, and has to close its business, your capital is still safe.

This is because the trustee, not the fund management house, holds your money.

Therefore, when you invest in a unit trust fund, you not only getting a return on investment (ROI), but also a return of investment – the return of your capital that you had initially put in.

Misconception 3: Investing in one or two super-performing unit trust funds can grow our serious money effectively

Truth 3: To grow your wealth effectively, you need to diversify globally

The quest for the “best” unit trust fund is a common one, but is it the right approach?

Many investors believe that investing in a single unit trust is effective enough to grow their money in the long run.

The truth is, the way to ensure the growth of your portfolio is by diversifying your asset classes globally.

Take, for example, the impressive performance of the global equities, which have shown an upward trend over the past 30 years.

Several key factors contributed to this phenomenon, including a rising global population and advancements in technology that fuel global demand and productivity.

As many businesses worldwide experience growth and increase their profit, this translates into a rise in global equities.

In contrast, if you were to invest in a share or one fund that focuses on one sector or country, the growth would be unpredictable and less sustainable in the long run.

Therefore, to achieve sustainable growth in your unit trust ROI, ensure that you are diversifying your unit trust funds globally to optimise your growth.

Misconception 4: Unit trust funds are expensive

Truth 4: Unit trust funds can be either expensive or cheap, depending on the channel and market you invest in

One crucial cost to consider for unit trust investors is the sales charge, also known as a front-end fee, applied when purchasing from your chosen fund manager.

When investing in unit trusts through traditional channels, the fees can sometimes go as high as 5%.

It’s important to scrutinise these fees, as high fees can significantly eat into your portfolio’s performance.

For example, suppose your unit trust generates an 8% return in the first year. If the front-end fee charged by your fund house is 5%, your actual return becomes only 3%.

Fortunately, with the online investment platform options and corporate unit trust advisor channel available today, there are many platforms where you can find front-end fees as low as 2% or even lower.

This makes choosing the right channel crucial, as it significantly impacts the fees you pay.

When comparing management fees of your different investments side by side, it is also important to take into account not just the percentage of the fees, but the overall returns of each type of investment and the markets that you invest in.

For example, investors often compare unit trusts to ETFS. ETFS typically boast lower average annual management fees compared to unit trusts.

Due to these lower fees, ETFS might appear to have the potential for higher returns compared to unit trusts.

On the surface, ETF may seem like a better investment option. However, this is not true for all markets.

For example, the investment environment and opportunities in developing markets are vastly different from the developed markets.

In such cases, some unit trust funds managed by experienced professionals have a higher chance of outperforming ETFS despite the higher fund management fees.

Therefore, when comparing investment options, consider the bigger picture.

Look at both the investment management fee and the overall ROI that the investment offers.

Misconception 5: Any unit trust fund salesperson can help you access to the best of breed unit trust funds from the whole market

Truth 5: Only selected qualified advisors can help you access the best of breed unit trust funds from the open market

To optimise your investment portfolio, consider investing in the best of breed unit trust funds tailored to your asset class and target market.

This means that if you are looking to invest in an equity fund in the local market, you should ensure that you pick the best quality fund among all the Malaysian equity funds.

But how do you identify the “best” unit trust fund for your needs? It’s not as straightforward as it seems.

The reality is that many investors rely on bankers or unit trust agents to recommend funds for them to invest in.

However, relying on these recommendations might not be the best approach, as their choices are often limited to the funds offered by their own companies or fund houses.

Therefore, the best recommendation they can make may not be the best fund for you to invest in.

Let’s take the example of several Malaysia equity funds under a single fund house.

The best performing fund within the single fund house, Fund A has achieved an ROI of just under 60% over a five-year period, which is quite impressive.

However, when we broaden our horizons and compare Fund A’s performance to options available in the open market, we are faced with the truth that the fund we initially thought was the best performer (Fund A) ranks lower when compared to other Malaysian equity funds in the open market.

Even more striking, the actual top performer in the open market delivered nearly double the ROI!

In other words, by choosing the seemingly “best” fund within one company only, you could have missed out on potential gains of an additional 60% of ROI. That’s a significant difference!

To ensure that you’re not missing out on potentially better options, consider consulting with independent financial advisors who operate under corporate unit trust advisor company.

They can advise and recommend a wider range of unit trust funds in the open market, not just limited to options within a single fund house.

From the points that I shared above, you’re now equipped with a better understanding of the ins and outs of unit trusts.

Unit trust funds can be a valuable tool to effectively grow your money.

However, to get the most out of them, it’s important to select the best of breed funds, diversify your investments globally and invest through channels with lower management fees.

By following these steps, you can build a sturdy portfolio that will grow steadily in the long run and provide you the financial growth that you seek.

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“Many investors believe that investing in a single unit trust is effective enough to grow their money in the long run. The truth is, the way to ensure the growth of your portfolio is by diversifying your asset classes globally.”

New Zealand may have a solution for world’s debt

Quick fix: Pedestrians walk past a Moore Wilson & Co supermarket in Wellington. The success of New Zealand’s reforms are reflected in its fiscal performance, says Ball. — Bloomberg

WELLINGTON: In the early 1980s, New Zealand was on the brink of economic collapse.

Two oil price shocks had saddled the country with high inflation, and the United Kingdom’s decision to join the European Economic Community a decade earlier had cut off access to a key export market.

Successive governments had compounded the pain with a series of policy errors – throwing around subsidies, awarding inflationary pay deals and trying to control prices, while keeping interest rates too low and taxes too high.

The result was soaring unemployment and mounting debts.

No wonder some dubbed New Zealand the Albania of the South Pacific.

Yet over the remainder of that decade, New Zealand was transformed into one of the most prosperous countries in the world.

A new Labour government took office in 1984 and embarked on a form of shock therapy that came to be known as “Rogernomics” after Finance Minister Roger Douglas.

The government removed exchange controls, slashed subsidies, privatised services and handed responsibility for setting interest rates to a newly independent central bank.

New Zealand also introduced a different accounting approach throughout the public administration.

It is impossible to separate out the precise impact of each of these policies.

But Ian Ball, a former senior Treasury official, professor of public finance management at Victoria University in Wellington, and one of the authors of Public Net Worth (Palgrave Macmillan, February 2024), says accounting reform was among the most consequential.

Accounting is notoriously dry stuff. But switching to an accruals-based approach used in the private sector, and away from the cash-based systems traditionally used by governments, forced departments to think long-term and maximise the efficient use of assets.

This is especially relevant in the United Kingdom at the moment with the government on the cusp of major budget reform.

To see what this means in practice, take the case of public sector pensions.

Under a cash-based system, the debt is accounted for when the pension is paid, which could be years in the future.

The government has little incentive to make any provision for it.

But with accrual-based accounting, the cost of the pension commitment must be recorded as a liability when the benefit is earned.

That led the New Zealand government in 2001 to establish a Superannuation Fund to pay for future pensions.

Today, this quasi-sovereign wealth fund is regarded with jealousy by countries that wish they had something similar.

Take another example: Under an accruals-based system, the budget includes a charge each year to reflect the fact assets such as buildings and infrastructure deteriorate and eventually become obsolete.

This is what accountants call depreciation.

Because the cost runs through annual budgets, there is a strong incentive for governments to enhance the value of their assets by managing them efficiently.

Under a cash-based system, there is no such incentive, meaning long-term investment is deferred, and future generations are left to pick up the bill when buildings fall into disrepair and the infrastructure crumbles.

The success of New Zealand’s reforms are reflected in its fiscal performance, says Ball.

“What you see is a very significant change.

“We had had two decades of deficits before these reforms, but once they were in effect, from around 1994, we had basically a trend of strengthening the balance sheet and increasing net worth.

“And as you strengthen the balance sheet, you have the effect of reducing debt too.”

With the exception of the four years after the global financial crisis and the devastating Christchurch earthquake in 2011, which caused damage equivalent to 11% of gross domestic product (GDP), net worth grew every year until the pandemic.

Ball is on a mission to export New Zealand’s experience.

In collaboration with colleagues from around the world, including a historian, a banker, a former UK Treasury official and the former global chief economist at Citigroup Inc, he has written Public Net Worth to explain how this approach could be the answer to the one of the biggest challenges facing almost every government today:

How to tackle excessive public debt, particularly at a time when ageing populations, geopolitical tensions, geoeconomic fragmentation and the costs of combating climate change add to fiscal pressures.

US public debt is close to 100% of GDP and is projected to rise to 122% by 2034.

Many eurozone countries are struggling to bring debts and deficits under control to comply with single currency rules. The situation in many developing countries is even more stark.

Indeed, economists from the International Monetary Fund (IMF) have warned that global public debt may be higher than previously known and getting worse, and that countries will have to make much more significant fiscal adjustments to deal with the problem.

According to the IMF’s latest estimates, global public debt will exceed US$100 trillion by the end of this year, equal to about 93% of global GDP.

Against such a backdrop, the authors argue that accrual-based accounting could improve public sector productivity, helping ease the pressure on cash-strapped governments.

For example, they reckon governments could make easy gains through better management of their public property.

Cash-based accounting values property based on what you paid for it, less depreciation, with no reference to the current market value.

But without up-to-date valuations of assets, government decision-making takes place in the dark.

Should a building be renovated or sold?

How much should the state charge for its services?

A road network, for example, is a valuable public asset.

But in a cash-based system, there is no incentive to generate money from it, whether via tolls or road-pricing or some other mechanism.

In New Zealand, says Ball, one of the early exercises was to work out an appropriate capital charge for public services.

Armed with that information, the government could then decide who was best placed to deliver them: the state or the private sector.

As the old saying goes, what you can’t measure you can’t manage. — Bloomberg

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What’s in the RM421bil 2025 budget

 

Budget 2025: Singles, senior citizens to get RM600

Prime Minister Anwar Ibrahim tabled the 2025 budget, of which RM335 billion, or 79.6%, accounted for operational expenditure. (Bernama

PETALING JAYA: 

Prime minister and finance minister Anwar Ibrahim has tabled the 2025 federal government budget, with a total allocation of RM421 billion.

This represents a RM27.2 billion increase compared with the RM393.8 billion that was allocated for 2024, and is the first time that the budget has exceeded RM400 billion. 

Operational expenditure accounts for RM335 billion, or 79.6%, while RM86 billion is allocated for development expenditure.

Here are the highlights of the 2025 budget:

Economy and investments

GLICs to invest RM120 billion domestically over the next five years. RM25 billion is allocated for next year, while projects worth RM9 billion will be developed through public-private partnerships.

Government to introduce the New Investment Incentive Framework in the third quarter of 2025. RM1 billion in investment funds will be allocated to train local talent and encourage high-value activities.

RM300 million for Khazanah’s National Fund-of-Funds to support investment in startups.

Development and utilities

Allocation for the National Energy Transition Facility raised to RM300 million for 2025 from RM100 million this year.

The Net Energy Metering programme is extended to June 30, 2025, for the installation of photovoltaic solar panels.

RM1 billion for the green technology financing scheme.

UEM Lestra and TNB to invest RM16 billion to improve transmission and distribution networks as well as to decarbonise industrial areas.

All government agencies to sign energy performance contracts to slash electric bills by 10%.

Taxes

Sales tax to be imposed on premium imported food items like salmon and avocado from May 1.

Service tax will be widened to include commercial services, including businesses like fee-based financial services.

Full implementation of the expanded SST starts May 1, 2025.

2% tax on dividend income of more than RM100,000 earned by individual shareholders. This will start from the 2025 assessment year.

Carbon tax to be imposed on steel, iron and energy industries in 2026, to encourage use of low-carbon technology.

Individual income tax relief for education and medical insurance premiums raised to RM4,000.

Tax exemption on foreign-sourced income extended until Dec 31, 2036.

Additional 50% tax deduction for employers who hire women returning to the workforce.

Subsidies

Targeted subsidies for RON95 petrol to be implemented mid-2025.

Education

RM64.1 billion in total allocated to the education ministry.

RM2 billion to upgrade and maintain schools nationwide.

Construction of 44 new schools nationwide to commence next year.

RM870 million for the supplementary food programme in schools.

Nearly RM800 million for early schooling aid.

RM18 billion for the higher education ministry.

RM4 billion for scholarships, loans, and education allowances.

RM500 million provided by PTPTN for students in STEM-related courses in public universities.

Tax relief for savings in the National Education Savings Scheme (SSPN) extended by three more years.

RM20 million for UiTM to produce more engineers in the semiconductor sector.

RM50 million to teach AI-related subjects at all research universities.

RM600 million for research and development under the higher education and science, technology and innovation ministries.

RM7.5 billion allocated for TVET.

RM55 million for GiatMara and community colleges to train 10,000 children from tahfiz and pondok schools over five years.

RM120 million for MCMC to improve internet connectivity at public universities, schools, military camps and Mara institutions.

RM300 million to build two new special needs schools, one focussing exclusively on autism.

Health

RM45.3 billion for the health ministry.

RM1.35 billion for maintaining and repairing health facilities.

Government to raise excise duty on sugary drinks by RM0.40 per litre, starting Jan 1, 2025.

Security

RM19.5 billion for the home ministry.

RM560 million to enhance border security.

RM21.2 billion for the defence ministry.

RM5.8 billion to maintain and repair assets of the armed forces.

Allocation for the Malaysian Anti-Corruption Commission (MACC) increased to RM360 million from RM338 million.

RM20 million to strengthen the National Scam Response Centre.

Additional staffing of 100 people for the National Cyber Security Agency (Nacsa), along with an additional allocation of RM10 million.

Environment

The Ecological Fiscal Transfer fund to be raised to RM250 million to support state efforts in protecting forests and wildlife.

Social welfare

RM13 billion for Rahmah cash aid initiatives, compared with RM10 billion this year. This increase will benefit 60% of the adult population.

4.1 million households will get RM100 in cash aid a month, compared with 700,000 households this year. The cash will be credited into the MyKad of recipients from April 2025, and can only be spent on essential goods.

Singles will get RM600 each.

Social welfare department to get RM2.9 billion, compared with RM2.4 billion in 2024.

Senior citizen aid increased from RM500 to RM600 a month.

Low-income families to get RM250 in aid for each child aged six and under; RM200 for each child aged seven to 18. This is higher compared with RM200 and RM150, respectively, for 2024. This is however capped at RM1,000 per family.

The federal territories general aid is raised from RM100 a month to RM150, with a cap of RM500 per family.

RM300 million for an enhanced Rahmah programme to offer essential goods at reasonable prices.

RM250 million to enroll more low-income individuals in the People’s Income Initiative (IPR).

RM84 million to upgrade facilities at New Villages.

Income eligibility for disabled worker aid relaxed to RM1,700 a month.

Additional tax relief for disabled couples raised to RM6,000.

Additional tax relief for taxpayers with unmarried disabled children raised to RM8,000.

Aid for army veterans raised from RM300 to RM500.

Housing

Nearly RM900 million for 48 People’s Residency Programmes and 14 Rumah Mesra Rakyat projects.

RM12.8 billion in guarantees for over 57,000 first-time home buyers, with ongoing guarantees of RM10 billion for 20,000 buyers.

Jobs and community support

Minimum wage raised from RM1,500 to RM1,700 per month, effective Feb 1, 2025.

Enforcement of the new wage will be postponed for employers with fewer than five employees for six months (starting Aug 1, 2025).

RM200 million allocated to carry out the Progressive Wage Policy.

GiatMara to provide short-term training for 3,000 gig workers.

The EPF i-Saraan incentive is raised to 20% from 15%, subject to a cap of RM500 a year or RM5,000 in a lifetime.

Government to make it mandatory for foreign workers to contribute to EPF. This will be done in stages.

Rural communities

RM100 million for services like mobile clinics to cater to rural communities.

RM2.9 billion to upgrade basic infrastructure in rural areas.

RM380 million for the Orang Asli from RM330 million this year.

Civil Service

On-call duty allowance for medical and dental officers to be increased between RM55 and RM65, depending on the department.

Over RM1.8 billion for the construction, maintenance, and renovation of civil servants’ quarters.

RM500 in special cash aid for civil servants Grade 56 and below.

Transport

Prasarana to provide vans to shuttle students from selected train stations at the cost of 50 sen per ride.

RM2.8 billion to maintain federal roads. RM1 million earmarked for secondary, Felda and industrial roads, as well as roads damaged due to floods.

RM5.5 billion for maintenance of state roads.

Commodities

RM60 million in grants for rubber smallholders.

RM100 million in incentives for smallholders to replant oil palm.

RM2.6 billion for Felda, Felcra and Risda.

Industries and businesses

Multi-tier levy to be implemented in early 2025 to reduce reliance on foreign workers.

RM200 million for Retirement Fund Incorporated (KWAP) to invest in local startups.

RM50 million in matching grants for local entrepreneurs to digitalise.

RM3.2 billion for micro loans from Tekun and BSN for small traders, including the disabled, Chinese and Bumiputera communities.

RM800 million in funds under Mara and PUNB for Bumiputera entrepreneurs, including artisans.

RM1.3 billion to empower G1-G4 contractors to undertake small and medium projects.

Agriculture and food security

RM300 million to collaborate on agricultural projects with state governments to boost local food production.

RM1 billion for initiatives to control prices and supply of goods.

Tourism, arts and culture

Almost RM550 million to enhance tourism promotions and activities for Visit Malaysia 2026.

RM110 million for improving tourist facilities, pursuing Unesco nominations for various cultural sites, and establishing ecotourism cooperation.

RM600 million to restore key cultural sites in Kuala Lumpur.

RM50 million for Dewan Bahasa dan Pustaka to collaborate with language activists in promoting language and literary activities.

Youth and sports

RM50 million for PLKN (National Service Training programme) 3.0.

RM25 million for the Rakan Muda programme.

RM230 million for national sports development.

RM15 million for Harimau Malaya and the Under-18 and Under-13 teams.

Sabah and Sarawak

Sabah and Sarawak will get RM6.7 billion and RM5.9 billion in development funds, respectively.

Special grants for Sabah and Sarawak doubled to RM600 million in 2025.

Over RM200 million for flights to interiors in Sabah and Sarawak.

Disaster management

RM150 million to mitigate flash floods.

RM600 million for the National Disaster Management Agency to prepare for flood disasters.

RM250 million allocated for slope repairs nationwide.

RM20 million for GLIC and GLC foundations to help them provide aid to flood victims.

Islamic affairs

RM2 billion for Islamic affairs.

Halal Development Corporation to merge with Matrade.

RM100 million matching grant to encourage the development of new Islamic finance solutions.

Jakim to hire 100 halal auditors.

RM200 million for the Urban Development Authority to develop affordable homes on waqf land.

RM35 million for Kafa teachers, imams and related personnel.

Laws and legal reforms

Allocation for the legal affairs department raised from RM194 million to RM209 million.

RM200 million for the national audit department, an increase from RM173 million.

Government to form a law reform committee to update commercial laws.

RM60 million for the judiciary to upgrade its infrastructure, including the e-Kehakiman system.

RM25 million for the Special Agency Reform Task Force (STAR).

Others

RM27 million allocated to the Malaysia Competition Commission (MyCC) to bust cartels.

50 acres from the Bandar Malaysia project designated as Malay reserve land.

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