Unit Trusts: Sales Charge and Expenses
Currently, I have three unit trusts that had made more than 10% in 2 months. I may make even more if there are no sales charges and expenses for unit trusts.
Lion Capital Singapore/Malaysia
http://www.Fundsupermart.com has reduced its sales charges from 2.25% to 2%, though you can probably find lower sales charge at http://www.poems.com.sg for certain unit trusts.
One thing to look out for when buying unit trusts is to see the sales charge. Banks charge 5% for sales charge, which means you are down 95% the moment you enter the market. It will take some time before you break even.
Apart from the sales charge, you need to look at the annual management charge and the annual expense sales ratio. This will eat into your profits and you don’t really see this directly. It affects the price of your unit trusts.
Sometimes, it is hard to enter the market at the right time, especially since unit trust prices are updated at the end of every day, and if we buy the unit trust, we don’t see the price immediately until the sale is finalized.
One way to overcome this is to put in money, say every quarter, and you will average the risks. When the price is high, you buy fewer units, and when the price is low, you buy more units. It averages out the risk. You only hope that the price will go up in the long run, so that you can make money, without all the profits going into the expenses.
We need to pay the salaries of the fund managers and staff. They are somewhat limited as they cannot keep too much of the portfolio in cash, so they may buy in even though the market is not performing that well.
In the long run, there are numerous other tools that provide better returns, so unit trusts should only form part of your portfolio. I still recommend unit trusts for newbies, since it is the easiest way to grow your money without you constantly monitoring each stock. I can’t complain since two of my unit trusts made more than 100% returns in 5 years, and I did not bother about them for a few years before selling them.
Sarah Tan - SingaporeProfit.com
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To reduce/avoid sales charge, you can switch from one equity fund to another equity fund if you use country rotation strategy.
I’ve never tried this before, so thanks for your advice!