Why Investing in a Unit Trust May Just be Right for You

Mutual funds, the US equivalent of units trusts, can easily be rated as popular in the American financial market. I have seen figures indicating the existence of close to 10,000 different funds in operation. A big economy, you would say, but compare that to less than 20 active unit trusts in Nigeria. Maybe the name makes the difference, but the UK had over 2,500 unit trusts by April 2007. When you further consider the level of participation - in terms of numbers of investors and asset holding of the sector - you will see where poverty lives. So, we won't go there. However, the reality, you must appreciate is that poverty eradication in societies with very limited investment awareness and weak investment vehicles will remain daunting, if not elusive.

Okay, let's personalise this. Where do you want to stand: stay uninformed, uninvolved and be part of the chorus of government's poverty eradication songs, waiting for that knock-out blow of NAPEP? Or to begin to structure your life in a purposeful way that takes advantage of the opportunities that exist for financial advancement? Yes, it could be difficult initially, but when you begin, you steadily develop financial muscle and gradually move into a new vista of clear expectations of your financial advancement milestones. If you choose to begin that process of transformation and repositioning, here's how unit trusts can help you advance in your drive:

Access to the Wealth-pot
There are major companies that drive critical sectors of the economy and have developed market stature over the period. They become recognised as bluechips, with a lot of earning capacity and returns for their shareholders. The snag: their share price profile usually reflects their market rating. Mostly, they are high-priced and not easily affordable. So, small investors stay off and leave the cream of the market to the 'money-bags'. Well, not exactly, if you know that unit trusts offer you the opportunity to access these and any quality investment in the market. How? The pooled funds (now in critical mass), are deployed by the fund manager to invest in any securities he considers good investment, within the investment framework of the fund. As a fund units holder, you consequently gain the benefit of investments that otherwise would have been out of your reach. Obviously, you win.

Portfolio Strength
We have always highlighted the downside of investment in securities, particularly stocks: the inherent risk. Market prices flutuate and while that opens opportunities for profit, it does lead to losses, in some cases. Portfolio diversification is one of the accepted tools for managing investment risk. A strong, well-diversified portfolio of various asset classes may however be elusive to a small investor, leaving him rather overexposed. With limited resources, how much diversification can you achieve? Well, your challenge there could be overcome by logging into one or more unit trusts. You buy your fund units and go to sleep, virtually. That's because the fund manager should be investing in a diversified portfolio. He has the resources to do so.

Fund Management Expertise
Granted that not every fund manager proves to be a top-performer, it is doubtful if any unit trust scheme will be put in the hands of a novice. Anyway, you have their track record to judge their quality and shouldn't stay invested with an underperforming fund manager. Having said that, taking advantage of the professional skills of a fund manager is a key reason to consider investing with a given unit trust. If you know next to nothing about investing, should you stay scared off the market and missing its opportunities? A good way to get going is by buying into a unit trust where there are already experts who understand the basics of investing and market performance. By turning over your money to the fund, you readily take advantage of their experience and training which, hopefully, will reflect in the returns and value of your investment.

Active Management Benefits
Even when you are knowledgeable about investing, there is a question as to whether you have the time and disposition to actively manage your investments, keeping track of the markets and taking decisions and action on a ongoing basis, if need be. Many people can't. Stock analysis and selection as well as decisions relating to the timing of sales, also often require more than casual attention. Not every investor can handle the grit of running their portolio of investments. Many, too, can't easily stand the stomach-churning swings of market prices. And, if your blood pressure is already inching up, would it be wise to subject the system to more tension? These are circumstances where a unit trust strategy takes some burden off you, without you necessarily losing the chance to earn good returns.

Programmed Investment
Most unit trusts allow you a choice to make bullet investments when you have the resources and to also regularly make a programmed addition. What this means is that you can send a cheque each time you have your pay or better still, leave a standing order with your bank to remit a given amount to your fund manager. Given that compelling saving and getting your saving invested could prove a hard nut to crack for many, this vehicle easily meets both challenges. There may be other investment options that meet this same objective, but no doubt, unit trust arrangements can help you ensure a steady flow into your investment account. Add the fact that most of them provide for online transactions and this could be your easy root to an regular investments.

Ultimately, the critical thing is to see the urgent need to get your life on a sound financial footing. The fact that you can easily drive that objective with consistent investment action will hardly be in any more doubt. Where the challenge lies is in how to get your investing machinery into action and working effectively. Many vehicles will serve this purpose, each suiting certain circumstances. Units trusts are one, and where and when they work most beneficially have been examined. If they look good for your needs, don't hesistate to take action. Not getting a perfect approach is nowhere to be compared with the error of inaction. Choose to invest and personally manage your portfolio if you are comfortable doing so. Otherwise, take a managed fund approach and let professional managers work for your benefit. Before you do, however, make sure to read other materials we have in this section that provide additional guide on how to successfully use this investment option.

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