FUNDS FOUND IN UNIT TRUSTS

Before we go deep into funds found in unit trusts let’s first understand these key words used in this text

1. Unit Trusts

2. Mutual Funds

1. Unit Trusts

• Unit trusts are unincorporated mutual funds structure that holds assets and provide profits to individuals unit owners, instead of reinvesting into the fund.

• Unit Trusts are unincorporated mutual funds that passes profits directly to investors rather than reinvesting in the funds.

2. Mutual Funds

• Mutual Funds is a financial basket/vehicle that pools assets/funds from shareholders to invest in securities such as stocks, bonds, money market instruments and other assets.

• Mutual funds is a managed fund that pools money from shareholders to invest in securities.

Now here are the funds that are found in unit trusts

1. Money market fund

Money market funds are funds that are invested in in short-term fixed income securities such as Treasury Bills, Bank Deposits, Commercial papers, Asset Backed securities and Repurchase Agreements. These funds are ideal for individuals as well as corporates to park their temporary cash surpluses and earn a competitive tax free return. These funds generally provide liquidity similar to saving with a high/good/attractive returns. Investors can keep their investments even for a shorter period and earn a return. Investors in this fund are paid/get interests per year. The risk type of this fund is low.

2. Balance Fund

Balance Fund have an objective of providing the investors with a regular return and a capital appreciation in the medium to long-term. The investments of the funds are made in equity securities and fixed income securities can vary depending on the market conditions and the investment strategies of the fund managers. These funds generally pay out a dividend once a year and investors can expect a capital appreciation in the unit prices in the medium to Long-term. These funds are ideally suited for investors who are seeking a regular return and who are willing to take a moderate risk for capital appreciation in the medium to long-term. The risk type of this fund moderate.

3. Growth Fund

Growth Fund the are funds that have an objective of a capital appreciation in the medium to long-term. Major part of the investments of the fund is made in equity securities with a smaller portion of funds in fixed income securities. Here the fund manager will make make investments in share of companies that are expected to grow their earning in the Medium to long-term. Investors in these funds can expect a return higher than the rate of inflation on the medium to long-term. Similarly the risk to this fund is higher than the balanced funds. These funds may not pay regular dividend to the investors but the investors have the option of selling their units back to the management company if they feel that they are not happy with the growth fund. The risk type of this fund is higher.

4. Income Fund

Income Fund are funds that invest in fixed income securities that provide a much higher return than the Treasury Bills and Bank Deposits. Major part of investment of the fund is made in corporate debt securities yielding higher returns. These funds also make investments in Treasury Bills, Bank Deposits and Repurchase Agreements. Investors in these fund get a regular dividend from the fund either semi-annually or annually. The risk type of this fund is high.

5. Equity Fund/Stock Fund

Equity Fund are mutual funds that largely invest in the stock of various companies to generate returns. Equity funds have a higher risk as compared to other investment funds. The size of an equity fund is determined by market capitalization, while the investment style, reflected in the funds stock holdings which is used to categorize equity mutual funds. The risk type of this fund is higher than other mutual funds.

6. Bond Fund

Bond Fund is a mutual fund that invests in bonds and other debt securities, paying dividends periodically and not possessing any maturity date, unlike other mutual funds. The bond pools investors money and invest it in government securities, bonds debentures, debt securities and fixed deposits. The bond is suitable for long-term goals of the investors. The returns are higher than the money market. The risk type of this fund is high.