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#29 What Is Unit Trust And Why Is It So Popular In Malaysia?

Updated: Jan 5, 2022

Unit trusts are among the most trusted and popular investments in Malaysia as reported by Loanstreet (Malaysia's leading independent personal finance website). This is because according to some financial consultants, unit trust investment is one of the easy investments and can be joined by those who want to know the world of investing.

Since the onset of the pandemic, many Malaysians have lost their jobs and sources of income. As a result, they are very worried about their financial resources while Malaysia is still active in eradicating the spread of Covid-19.

Therefore, among the ways suggested by financial consultants is that they need to plan expenses prudently and find ways to ensure that their financial resources are always available by making an initial investment but what makes unit trust so trusted by Malaysians and why lately, unit trusts are often the talk of the town on social media. Here are some things that we can discuss over the unit trust so let's take a look.

What is a unit trust?

First, what is a unit trust? This unit trust is a collective investment where investors will invest their money and then it will be placed in one fund. The fund will be managed by a fund manager. Fund managers are those who will manage the fund in detail. Investors only must wait to make a profit. It sounds quite a simple investment right, but this is one of the reasons why Malaysians love to invest in the unit trust.

Who manages the funds and how are the funds managed?

So who manages the fund and how is it managed? This is a common question that is often asked by the public who are beginning to be interested in investing in unit trusts. There are many fund managers in Malaysia. Most of them are private financial organizations or those established under conventional banks. For example, like Kenanga, Maybank Asset Management, Public Mutual, Manulife, and many more. Or just go straight to any conventional bank website to find about the unit trust investment under them.

There are also fund managers set up or issued under the government. For example, the most popular one such as ASB(Amanah Saham Bumiputera). There are about 40-unit trust fund management companies in Malaysia as of 30 September 2019.

More interestingly in 2018, the Robo-advisor system was first introduced in Malaysia through the first Robo-advisor, StashAway. StashAway was founded in 2017 in Singapore. But did you know that Malaysia also had a home-grown Robo-advisory platform? Yes, it is known as Akru. Akru12 was able to provide investors with exposure to both local and foreign securities as well as selected unit trust funds.

Reason #1: No need to know about investment knowledge.

So with the presence of many fund managers as mentioned above makes it one of the factors why Malaysians like this unit trust system. This is because investors do not need to know the science of investing in depth. It is enough to know about the main objective of why they want to invest in unit trusts. All the processes of how the fund would be managed will be done by the fund managers. So, investors just need to sit back and relax while waiting to make a profit.

But remember even if it is a simple investment but often misunderstand the investor. This is because investors do not first study the nature of this investment. This unit trust investment is not a short-term investment, but it is a medium or long-term investment. For this context, what it means by the medium or long-term investment is the period or term of this investment which is around 5 years and above. So, if there is an investor who wants to invest in a unit trust hoping of getting a large profit in a year or less than 5 years, then that investor has chosen the wrong investment.

Reason #2: Suitable for those who have no time.

Next, investors who do not have time are strongly encouraged to use this unit trust to increase their income. Even if there are investors who think that investing in a unit trust is quite complicated because they need to make an appointment with a unit trust agent, it is not true. Why? Because as already mentioned, now the investment world has advanced technology that is Robo-advisor that will help investors to invest at their fingertips only. Everything can be done online only, including making investments. Now the fintech world has taken over Malaysia.

The use of Robo-advisor not only helps save time but is also very economical. The point here is that if an investor makes a unit trust investment using a fund manager in any investment management company, the investor has to pay a sales charge or management fee of 6.5% - maximum. But it is different if investors use this Robo-advisor. Although this Robo-advisor also still has a management fee, the average percentage value is very minimal, which is only 0.6%.

The downside will come from the widespread use of Robo-advisor.

That is one of the charms of using this Robo-advisor that makes any type of investment that uses the system a huge advantage to the investors. But with the development of the use of Robo-advisor, makes it a piece of bad news for existing fund managers. This is because if all investors in Malaysia use the Robo-advisor application, then the careers in fund management will be reduced and somehow soon would vanish.

So to fund managers now need to be prepared with this probability because the world is now becoming automated. It is expected that by the year 2030 almost 2 billion people will lose their jobs. Among them are those in the field of intermediaries such as fund managers. So, they can start to look for any other opportunities by scale up their knowledge and skills from being a fund manager to a financial planner or any more secure career.

Reason #3: Diversity of types of funds available.

There are many types of funds available in Malaysia. For example, money market funds, fixed-income funds, equity funds, sharia-compliant funds, and so on. The diversity of types of funds available shows that this unit trust investment is very wide and able to meet the needs of investors. This is because each type of fund has a different risk profile and return. Every investor who wants to invest in unit trusts needs to be aware of their investment objectives to make it easier for them to choose a fund that can meet their investment expectations as well as the risk of choice.

These unit trust funds are usually categorized according to investment asset classes. It is the responsibility of the fund manager to be aware of and knowledgeable about the differences between these asset classes. Fund managers need to be smart in finding strategies and active in selecting and finding funds that match the investment objective.

Final thoughts.

Overall, this unit trust investment is very suitable for those who just want to learn about investment. Most financial consultants also strongly encourage people to join in these unit trust investments. The Malaysian government has also opened an investment system like ASB for Bumiputera because it knows about the benefits of this investment to Malaysians.

Looking at the current economic slowdown, it is not wrong to start the right step to secure financial resources in the future. So, it is not strange that many Malaysians have started talking about this unit trust since last year.

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