OK, first things first,
let's go through a few of the terms that you would no doubt come across during
your search for the perfect unit trust.
We know its a little
dry, but do try to read it through at least once, so you at least have an impression
of these terms when you come across them.
| Annualised
Rate of return |
The return achieved
over a period of time expressed as an annual compounded interest rate.
Used more to measure performance over long periods.
|
| Annual
charge |
The annual fee
charged on your investment. This fee is used to cover the costs of managing
the fund and other administrative costs.
|
| Asset
Allocation |
The distribution
of different parts of a portfolio to different types of investments.
|
| Bear
Market |
When the market
environment suffers from a general downward fall in prices. "Bear"
because the animal tends to drag down its prey.
|
| Benchmark |
An index that
unit trusts measure themselves against. Those that outperform
the index are generally considered to be doing well and vice versa.
|
|
Bid price
|
The price at
which the fund manager buys your units back from you. Remember, the fund
manager HAS to buy your units back if you want to sell them.
|
| Blue
Chip |
An established
company with a long record of profitability. Usually has a large market
capitalisation and is fundamentally sound.
|
| Bull
market |
When the market
environment experiences an upward rise in prices. "Bull" because
the animal tends to throw its prey upwards.
|
| Capital
appreciation |
The increase
in the market value of investment. This is the main objective of most
equity-based funds.
|
| Compound |
Interest or
other payments on amounts of interest or other amounts already received.
|
| Derivative
instrument |
A contract instrument
whose price is affected by the price of an underlying security. This would
include instruments like futures, warrants, options and convertible bonds.
|
| Dollar
Cost Averaging |
A constant investment
into a fund at predetermined times such that the investor purchases more
units when the price is low and less when it is high. The idea is that
the overall cost is lower than if only a lump sum of money was invested
at one time.
|
| Discount/bonus |
A reduction
in the initial charge, thereby lowering the purchasing cost of a unit
trust. A bonus achieves the same effect by giving you extra units at no
extra cost.
|
| Emerging
Markets |
Markets of economies
which are at an early stage of development.
|
| Equity |
The part of
a company's capital which is owned by its shareholders, commonly known
as 'shares'. Equity funds invest in a broad portfolio of shares.
|
| Exposure |
How deeply involved the investor is in a particular theme or trend.
|
| Fully
Invested |
This refers
to the situation when the fund has all its cash invested in stocks. Most
fund managers usually retain some cash balance for redemption purposes.
|
| Index |
A statistical
representation of the price of a basket of securities representing a market,
a group of markets or a particular sector of a market, e.g., Kuala Lumpur Composite Index,
Hang Seng Index, Jakarta Composite Index. Indices are an indication of the general
movement of a market.
|
| Index
Fund |
A unit trust
which is invested in the exact same stocks (but may be in different proportions)
as a particular index. It usually charges very low fees. Index funds are
normally managed by computers.
|
| Management
Fee |
The fee charged
by a fund manager for managing the portfolio of the unit trust. Usually
expressed as an annual amount, but accrued each time the unit trust is
valued.
|
| Net
Asset Value |
This is the
total value of all the assets (stocks, bonds, etc) minus all the expenses
(management fees, advertising) in your unit trust.
|
| Offer
Price |
The price at
which you can buy units in a unit trust.
|
| Portfolio |
A collection
of individual investments. In a unit trust, the group of securities held
is a portfolio. For the individual investor, the group of unit trusts
held can also be a portfolio.
|
| Prospectus |
The public document
that gives you all the information that you should know about a particular
unit trust. It is a binding document that the unit trust purchaser promises
that he has read before he signs the application form.
|
| Redemption |
The selling
of unit trusts back to the fund manager
|
| Riskless
Asset |
Usually taken
to mean US. Treasury bills and bonds. The return on a riskless asset
should be the lowest acceptable return on an investment.
|
| Sales
Charge |
The proportion
of your investment which is taken from your money when you invest in a
unit trust.
|
| Sector |
This refers
to the particular industry which the unit trusts specialises in. A unit
trust's portfolio is usually categorised by sectors, e.g., telecommunications,
technology.
|
| Spread |
The difference
between the buying and selling prices of a unit trust. This is usually
about 5%.
|
| Underlying
Market |
The market which
a unit trust is allowed to invest in, e.g., Kuala Lumpur Stock Exchange would be the underlying markets
for a Malaysia unit trust.
|
| Unit
Trust |
A large portfolio
of securities managed by a fund manager that is spilt into smaller units
which can be purchased by individuals.
|
| Volatility |
A measure of
how much the price of an asset fluctuates over short periods.
|
