Friday, December 17, 2010

Introduction to Insurance

While we understand that to invest in a unit trust carries certain risk, especially so when the unit trust carries lots of equity component and more so if the investment is on foreign market. It is repeatedly emphasize on my previous article that studies need to be done before investing in unit trust or investor will risk losing big chunk of his investment for nothing but being lazy, the very first part of studies we need to do is on the master prospectus or the proposal prepared by the fund manager; on this single master prospectus it contain almost all the information that an investor needs which include the percentage of investment on each sector & industry that the fund invested in; investor will also find information that provide a benchmark for investor to compare the fund performance against the benchmark of the country such as the stock exchange. But however the benchmark studies is on an average basis and does not truly provide an accurate comparison, it is however good to take note on this comparison studies as a guide for all of us.
Identifying these investment sector & industry is important as the performance of the economy as a whole will reflect on the performance of the fund as well, for example if a particular fund have its investment 70% on equity and out of this 70% equity stake 60% is on a particular company equity then investor might want to keep an eye of that company performance and equity price. It is important for us to know the some information of the industry that the unit trust invested in, to study its profitability and the risk involve in the investment. The most important component will be the major sector and industry that the fund invested in while other smaller component is not as important as those in major component. In most cases, investor themselves are not aware of this information and what their unit trust invest in which result in poor self management and at the end investor themselves are at the losing end.
For some unit trust fund, it provide investor an opportunity to foreign exposure and it comes together with greater risk compared to local fund due to uncertainties in exchange rate, government policies and many more investment risk. For this type of funds, investor should conduct some studies before making any decision on the country you are interested to invest in such as overall economy performance, industry growth performance, government policies on the industry the fund invested in and the exchange rate of the invested country against your country and its votality. Since the fund is foreign to you it is good to understand the risk involved to you and investor have to be reminded that such fund is not suitable for investor that do not want to take high investment risk; but the return on these investment might be better than other lower risk fund.
As a conclusion, the main reason for investor to suffer lose is due to their lack of studies on the fund, most investor lose on unit trust on this basis alone and some simply do not aware of such studies.

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