Friday, July 10, 2009

Top Up Your Unit Trust/Mutual Funds

The stock market and economy is not in the best shape yet but it is a good chance for investors to start rack in large number of cheap investment products. In this topic, I will discuss about top up unit trust or mutual funds investment.

Unit trust or also known as mutual funds are well known for long term investing. Unit trust is a diversified funds that invest in large number of stocks in order to improve the return over longer period of time. If you already purchase unit trust, it would be good to top up during the bad time of economy and take advantage to gain higher return in the long run.

Currently, the economy has not recover back to the previous high and it still has a large potential to move up further in the long term. So, topping up your unit trust now is considered a good time.

Advantages of topping up during bad economy:

1. You can gain more units using the same amount of money.
2. You can lower down the price per unit or commonly known as cost averaging technique.

By topping up unit trust during bad economy, you can take advantage to increase the total units in your unit trust portfolio.

Let us do some mathematics:
Calculation for Advantage 1:
Assume that you want to top up RM 1000 at NAV RM 0.15. You will get 6666.67 units.

As compared with:
Investing RM 1000 at original NAV of RM 0.25. You will only get 4000 units.

This means that you gain 2666.67 units more by using RM 1000.

Calculation for Advantage 2:
Assume that your initial investment in a unit trust is RM1000.00 at RM0.25 NAV with 4000 units at hand.

Assume you want to top up RM1000 at RM0.15 NAV. You will get 6666.67 units. After top up, your total units will be 6666.67 + 4000 = 10666.67 units

Therefore,
Your new NAV per unit = RM 2000/10666.67 = RM 0.1875 NAV.

You can see that you effectively reduce the NAV from RM 0.25 to RM 0.1875.

So, when market go back to its original and unit trust recover back to original NAV, your unit trust portfolio is making profit instead of losing money.

It is recommended to invest in dividend funds because you will get dividend every year and this will further improve your investment return. I have got my dividend from the unit trust fund I invested in [Read here].

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