Tuesday, January 22, 2013

Invest Unit Trust with Insurance Policy

Unit Trust Investment has been proven an important tool for many people, whom prefer to outsource the job to expert or have no time and capability to actively manage a portfolio on their own.

However, for those who invest in Unit Trust, I believe over 90% do not understand one important, if not vital fact that, Unit Trust Fund is almost certainly is Open-Ended Fund, except for the iCapital.biz which is listed on the Bursa Malaysia and the fund managed by Warren Buffet.

So, what is Open-Ended Fund and why investor must learn and understand it?

Open-Ended Fund means
A type of mutual fund that does not have restrictions on the amount of unit the fund will issue. If demand is high enough, the fund will continue to issue units no matter how many investors there are. Open-end funds also buy back units when investors wish to sell.
Read more: http://www.investopedia.com/terms/o/open-endfund.asp#ixzz2IcuV9aJ8
The major drawback of an Unit Trust Fund is, the Fund Manager, no matter how good, can not control the buying or selling of Units by the Investors, which were mostly influence by the "Greed and Fear" Cycle and efforts of the Sales People.

Thus, a good fund with good investment, at bad time, will have to sell the investment at loss because the Investors redeem the Units. OR, have to buy expensive Investment when Investors buy the Units when market is good. This is proven a reason why most fund can't perform well over long time.

How can we invest in Unit Trust Fund with less impact from above scenario?

Answer - Buy A Unit-Linked Insurance Policy.

Most people buy Unit-Linked Insurance Policy for the purpose of coverage, either for the Medical Plan or the Life. Therefore, the issue of "Greed and Fear" on investment is of minimum impact for the fund manager, thus the fund performance.

Additional advantage is, you get a 2-in-1 plan, investment with certain form of coverage.

How to maximize investment and minimize the Cost of Insurance?

Well, you just need to commit a minimum target premium, usually RM100 per month and the balance will be the Top Up premium, which effectively 95% goes to your preferred Fund.

With the RM100 target premium, you can have a range of coverage at your choice, e.g.
- Life/TPD benefits RM50,000 AND
- Medical Plan OR
- Personal Accident RM50,000