Types of Mutual Funds (Unit Trusts)

Today, we shall look into a number of types of mutual funds (unit trusts) available out there:

Income Funds
These funds are designed to concentrate on low-risk assets like cash and fixed interest instruments to focus more on income for their unitholders. Income funds can also be known as defensive funds.

Growth Funds
These funds are designed to concentrate on long-term capital growth (not so much on income) and usually invests in higher-risk assets like stocks and real estate.

Index Funds (Passive Fund)
These funds are designed to track/reflect the performance of a chosen index. They are known as passive funds because it is usually a no-brainer for the fund managers to make investment decisions. They don’t usually care about stock picking and market timing. Index funds usually hold all the securities in the index that they are tracking, or perhaps choosing certain number of securities in an index that represent the index as a whole. These funds are meant to achieve performance like the chosen index.

For example, there’s an index fund called Bobby Fund (BBF) that tracks S&P/ASX20 index. There are 20 stocks in that index. So, BBF buys all that 20 stocks (according to their proportion) to track the index’s performance.

Single Sector Funds
These funds invest in securities from a single sector only.

Multi-sector Funds (Diversified Funds)
These funds usually invests their money across a wide range of asset classes to achieve diversification

Active Funds
As the name suggests, these funds have managers who actively make decisions to buy or sell securities and aim to outperform a chosen index.

Region Funds
These funds invest unitholders’ money in certain regions of the world. For example, there might be a fund that focuses on the Chinese stock market only.

Capital Guaranteed Funds
The type that intends to guarantee/protect your investment capital while making fairly reasonable returns. Usually, the funds invest money in lower-risk assets.

Alternative Investment Funds
These funds do not invest in the usual asset classes but rather on other things, like private equity, infrastructure, ethical funds, or hedge funds

Multi-manager Funds
In this type of funds, instead of investing directly in stocks, cash, money market instruments, and etc., the funds invest in other mutual funds.

For example, there’s a fantasy mutual fund called Blogobob Ittikal Fund (BIB). Instead of investing directly in the stock market, BIB puts its money in Public Ittikal Fund.

Exchange-Traded-Funds (ETFs)

Exchange-Traded-Funds (ETFs) are basically unit trusts. The difference is that they are able to be traded on the secondary market (i.e. stock exchanges) at a rather low cost.

I hope in a way, this post has given some useful information (even though it is not that complete). Any comments or corrections are very much appreciated.

Disclaimer: This article is not a specific nor general advice on managing or investing your money. This article does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.

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Other related posts:

Understanding Unit Trust
My Investments with Public Mutual
Fund’s Strong Performance
Back to Basics: Recovering from Negative Returns
Risk Tolerance Level
Risk Tolerance Level: Part 2

About nadlique

This blog is about the journey of a 28-year-old Malaysian towards financial freedom. This blog was started back when the blogger was 21 years old. However, his journey towards financial freedom had begun way before that. Materials such as investing, business, entrepreneurship, equities, and real estate are presented. The author also posts his thoughts and observations on life in general.

Comments

  1. This is a good round-up of the basic types of unit trusts. Now if you are to be asked, which of these do you prefer and why?

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