Unit Trust Case Study

1311 Words6 Pages
4. FINANCIAL INSTRUMENT 1 – UNIT TRUST A unit trust is a collective investment fund managed by professional fund managers that are pooled together and invested in a diversified range of local or foreign-listed assets such as equities, properties or money market instruments on a medium to long-term basis according to its distinct objectives. They provide investors with a steady stream of income such as dividends or to generate large capital gains. They may be priced by the ‘Bid and Offer’ or ‘Single’ pricing methods whereby various charges are levied on the Net Asset Value (NAV) or based on the funds invested and their sales proceeds respectively. As such, Mr. Tan should invest in the LionGlobal Short Duration Bond Class A DIST SGD to earn him…show more content…
With reference to Appendix _, Mr. Tan, a newbie investor who may be unknowledgeable about investments, need not dedicate his time and effort towards actively monitoring the unit trust and will benefit from the expertise and experiences of Mr. Phoon Chiong Tuck, a Certified Public Accountant possessing 32 years of experience, who is concurrently the fund manager and the Head of Fixed Income, in dedicating his time and effort towards managing the unit trust and utilise advanced market tools to make decisions that will certainly enable him to achieve above average returns. Furthermore, the BBB investment grade rating of this unit trust provides a sense of security to Mr. Tan knowing that this bond fund is safe and he will likely receive his returns. Moreover, he is able to invest or withdraw his funds by providing a few days of notice based on his level of satisfaction of its management by Mr. Phoon due to its high…show more content…
Tan will enjoy the flexibility of portfolio diversification as the funds are invested in various markets and industries that may be unavailable to retail investors as shown in Appendix _. This minimises his risks in the event of an investment failure. He will be able to invest a minimum lump sum of $1,000 and $100 for subsequent investments in cash as he does not have the required minimum amount of $20,000 or $40,000 to be maintained in his CPF Ordinary Account and Special Account respectively under the Central Provident Fund Investment Scheme (CPFIS) as shown in Appendix _. Alternatively, he may invest via the Supplementary Retirement Scheme (SRS) as it will provide him with tax-free investment gains when investing and up to $40,000 of the accumulated SRS funds will not be taxable annually for up to 10 years upon retirement age withdrawal as shown in Appendix _. On top of that, Mr. Tan will receive dividends on a quarterly basis and it will be reinvested to earn more dividends as shown in Appendix _. Over and above that, he is only required to pay a mere 3% – 5% preliminary charge, 1% - 5% switching fee, 0.5% annual management charge amongst other charges in exchange for a higher return as shown in Appendix _. Given that Mr. Tan currently has $72,543 and invests $25,000 in this unit trust with a yield to maturity of 3.40% per annum as shown in Appendix _, he will receive a total return of $25,000 x (1 + 3.4%)^17 = $44136 in 2033 when he turns

More about Unit Trust Case Study

Open Document