Advantages of investing in unit trusts:

Ready affordability
This is an obvious advantage - it doesn't cost much to invest in a trust fund. For an initial investment as low as RM500, an investor can buy into a fund and get:

Instant diversification
Investors in unit trusts can access a broader range of securities than they could when investing on their own. With a given sum of money, the individual investor can only buy a small number of shares and in a few companies. But when he invests that sum of money in a unit trust fund, he achieves immediate diversification - his money is pooled with those of other investors and this resultant bigger pool of money gets spread out over many more companies because of the greater purchasing power.

With diversification comes reduced risks. The loss made by a few counters can be offset by the gain made in the other counters. The investor can further reduce his risk by investing in several funds instead of just one fund.

Liquidity
There is ease in selling and buying the units compared with investing directly in stocks of companies where prices and the opportunities to transact depend on the supply and demand of the shares at that time.

Continuous professional management
Unit trusts are managed by a team of experienced professionals who manage the fund in an informed and organised manner as opposed to the individual investor who may invest in a random fashion. Investment decisions made by fund managers are based on extensive research and their own investment skills, and they continuously monitor the portfolio based on researched information.

Reduced stress
The investor does not have to worry about personally monitoring his various investments - keeping an eye on their performance and deciding when to buy or sell. Instead he has the superior investment skill of professionals to do it for him. Unit holders receive interim reports every six months on the progress of their funds, the investment changes made and dividends paid, as well as the fund manager's opinion on the investment market and economy. They also receive the annual reports.

Access to broader array of financial assets
Unit trust fund managers can trade in investment products that are normally inaccessible to the individual investor, such as government and corporate bonds, which may be restricted to institutional investors. Some of these products are traded in large amounts, which limits the individual investor even when he has the opportunity.

Disadvantages of investing in unit trusts

Subject to market risks
Since unit trusts invest in marketable securities, they are of course, exposed to market movements. Diversification will help reduce the risk but it will not eliminate risk entirely. The prices of units go up and down, dividends may or may not be paid, and you may realise a gain or loss when you sell your units.

Not suitable for short-term investment
Unit trusts are an investment vehicle suited for the medium to long term. This is because the gains from the investment in unit trusts are not realised immediately. At best one could sell the units held once its price appreciates. However, the upward movement in price, being dependent on the movement of the market, is usually much slower than the market's movement.

The moderating effect of diversification also works both ways i.e. to spread the risks in the case of a market downturn as well as the rewards in the case of an upswing in the market. Dividends for unit trusts are declared on a periodic basis and the compounding effects would only be realised over time in a favourable market environment.

No custom-made service
Investors of unit trusts are buying into an instrument of mass investments, hence they do not have control over the investment decisions made by the fund manager. They can't tell the manager what stocks to buy or what not to buy, and when to sell. The manager follows his own counsel, not the investors'. The most investors can do is to ensure that the objectives and investment policies of the fund match theirs. That's why it is so important for investors to read the fund's prospectus carefully and to select the fund wisely.

A Word about Costs Associated with Unit Trusts
There are some costs to the investor of unit trusts. It is important that you understand the various fees that will be charged to you by the fund as they will affect your total returns.

	Initial service charge - this is usually built into the fund's unit selling price;
	Repurchase fee - this may be included in the fund's unit buying price; and
	Management fee - this represents the company's fee for administering the fund and is directly charged to the fund.

In addition, there are also other expenses such as the trustee fee and brokerage expenses borne by the fund.

You should examine the fees structure of the various funds you are considering. Ultimately what is most important is the fund manager's competence. It is pointless to choose a cheap fund if it is managed by a mediocre fund manager, but a great fund manager may warrant higher fees.