1. The best time to invest is just before the dividends or bonus distributions are declared.
Not true. If your unit trusts agent advises you to invest in unit trusts funds due to its upcoming bonus or dividends payments and that you will make profit quickly, think again. You need to know what is involved in unit trust bonuses and dividend distributions. Bonuses will increase the number of units of the fund. For example, your investment in a fund cost RM1 per unit and you invested RM1,000 for 1,000 units. The fund then gives a bonus of one unit for every unit you have (a one-for-one bonus). Subsequently, you have 2,000 units. But the additional units do not increase the value of your investment to RM2,000. It will remain at RM1,000 because the additional units actually reduce your unit value from RM1 to RM0.50 (RM1,000 divided by 2,000 units). Similarly if your fund declares a 5% or RM0.05 dividend, you unit value will be reduced from RM1 to RM0.95 after the dividend is distributed. The dividend will not increase your unit value to RM1.05. So, investing prior to dividend or bonus declarations is not a quick way to make profits. Always think long term when investing in unit trust.
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2. Always choose funds that give the highest return in the past.
Not true. Past performance is not an indicative of future performance. Investors should not look at past performance records to predict future prospects. Study the fund’s investment strategy and asset allocation to support your investment decision. Generally, the asset allocation contributes significantly to the fund’s overall returns. |
