Why settle your money in fixed deposit when you can potentially get better returns if fund is managed in unit trust instrument?
As a business owner, I understand the need to have a buffer amount in the corporate account for rainy days.
How to identify this buffer amount? Just find the average balance over 12 months period. That is your bank account buffer.
Now, how much can be diverted into unit trust investment for the higher return potential? Depending on what you are comfortable with, the amount can be as low as 40% to as high as 80%.
What are the advantages of investing this buffer amount?
- As good as cash. Investment can be liquidated within a couple of working days notice, no questions asked. Funds invested do not have any lock-in period.
- Tax free dividend.
- Potentially higher return than fixed deposit via capital gains realisation.
Risk
- Market risk due to fluctuation of equity based products value. Depending on the amount of equity allocated in the chosen fund, price of fund will fluctuate. This is normal when investing in equity based products.
- Fund at loss when sudden need arise to liquidate. Can be mitigated by diversifying the funds invested into.
Method
- Capital gain. If risk tolerance is high, funds can be allocated mainly in high growth funds for maximum capital gain potential. This however poses higher risk and should only be exercised with extreme caution and deep knowledge.
- Dividend. For dividend generating reserves, yield will be low within the first 4-5 years while establishing a good base. With dividend reinvestment and constantly buying dips, yield will increase eventually and will provide a constant tax free income in the future.
- Hybrid. A mix of dividend and capital gain strategy is always the best option over the long term to minimize risk.
Allocation and strategy will be based solely on client’s objective and risk tolerance.
About Me
- 10 years in MY equity, 2 years in US equity investing personal funds
- Masters in Engineering from Moscow Aviation Institute
- Backed by a nationwide top-3 unit trust group with experience in managing unit trust investment for corporate clients