How To Make Money In Unit Trust Investment.
Your Are Set For Life Once You Understand This Concept.
Two ways to make money in Unit Trus.
If you read through until the end, I’m gonna show you the 3rd way (bonus)
This article aims to make Unit Trust investing fun & easy way without losing your sleep at night &, most importantly, making a heck of lots of money applying this strategy.
You don’t have to worry if the market goes up or down. Because either way, you will be excited!
This is how it works.
You have RM 10,000 to invest into XYZ Fund this year. The current Unit price (NAV) for this fund is RM1 /unit.
You will hold a total of 10,000 units in hand. (RM 10,000 divide by RM 1).
First-year: Something Good.
By the end of the year 2021, the “XYZ fund” Declare a distribution of 5sen per unit (Dividend), you received RM500 cash - Refer to Table 2.
Calculation: 10,000 units x RM 0.05 = RM500. This is the dividend you received in year 2021.
You can take out the dividend & spend it, or you can choose to re-invest into the XYZ Fund to buy more units.
Tips: Your Investment accont will grow exponentially if you choose to re-invest the dividend
In this example, we are going to take out the yearly dividend for easy calculation.
Second Year: Market Drop
In the year 2022, the XYZ fund price drops to RM0.5 due to global economic sentiment.
Would you be scared?
If you choose to sell when you choose to sell at RM0.50, you will definitely lose money.
Calculation: 10,000 units x RM0.50 = RM5,000
If you choose to stay invested, you will continue to receive income distribution (Dividend) from the “XYZ fund.”
But seasoned investors will invest more when the NAV drop.
As you can see in table 5, when you invest when the unit price (NAV) is low, you will receive more units.
Unit Bought: RM10,000 / RM 0.5 = 20,000 units.
Total units: 10,000 in 2021 + 20,000 in 2022 = 30,000 units
By the end of the year, when the “XYZ fund” declares an income distribution of 5 cents per unit, you will receive RM1,500
Dividend Received: 30,000 units x RM0.05 = RM1,500 —> this is passive income. you dont have to do anything to get this.
Third Year: Recession Is Real
In the 3rd year, the market continues to drop. Most short-term investors, at this point, will panic and sell their investments. But, if you sell, you only get back RM10,500 😅 . It’s a loss!
If You Sell: 30,000 x RM 0.35 = RM10,500.
Again, seasons investors will do the same thing. They add money when the NAV is low.
They will get more units when they buy low and received even bigger dividends. (passive income)
Fourth Year: The Market Finally Recover
When the market started to recover, the NAV went up to RM0.70/units.
You can choose to sell it and take out your Rm41,000 or
Just keep invested to received more dividends in the future and wait for the NAV to get higher.
Tips: I will personally choose to stay invested.
Fifth Year: Market Booming
When the market is booming, you will be rewarded by holding your units. Refer to table.
In the past 5 years, you have invested a total of RM30,000. Therefore, if you choose to sell all your units at RM1.20, you will get RM70,285.71.
Yet, you still received Dividends every year (passive income).
How Much is your total gain in the past 5 years??
ROI: (RM70,285.71 - RM30,000) / RM30,000 = 134%!! (ExcludingDividend payout)
ROI: ([RM70,285.71 + RM10,785.71]- RM30,000 / RM30,000) = 170%! (including Dividend)
*ROI = Return On Investment
Well, at this point, some investors might want to sell their investment and take out the earning.
But let me give you a suggestion… read on.
Bonus: The 3rd way of making even more passive income!
Introducing “Split”
Remember I told you earlier, Investor only wants to buy at a lower price, because they can get more units. At the price of RM1.20, most investors will shy away from the fund. This is why Fund Manager, at some point, will Split the price.
Let’s use the 1 to 2 split.
What will happen is, the NAV will split from RM1.20 to RM 0.60. And for the existing investors, the total units will be double!
(compare NAV & Dividend received from Table 9 and Table 10)
You will notice that your Dividend received increase significantly!
You're Market Value if you choose to sell remains the same.
One Final Concept:
Think of Owning a Unit Trust like Owning a Property. Why so?
Investing in Unit Trust is like Owning a good property that will increase value (Capital Gain). Just like a good Unit Trust fund, the NAV will increase over time.
When you rent out your property, you will receive rental income, just like the Dividend you received in your Unit Trust Fund.
Final Bonus: Why Invest Long Term
Table 11: shows an actual performance for Eastspring Investment Fund from 2006 to 2021.
One must understand that the Market Doesn’t always go up. As shown on the table, where market drop during 2008,2011 and 2018.
In Table 11 example, the person keeps invested regardless of the market goes up or down.
Total invested for the past 16 years = RM160,000.
Total Return = RM 574,907.02
This is equivalent to a 14.31% compounded return per year for the past 16 years.
To Conclude:
Now that you know, there are 3 ways to make money in Unit Trust.
Capital Gain
Income Distribution (Dividend)
Split (Dividend Booster)
&
You also know that the rules are pretty simple.
Invest more when the market is down because you get more units. Thus more dividends are received.
Invest for the long term. This is how your build massive wealth.
The Challenge comes to this. There are thousands of Unit Trust funds available in Malaysia. So how do you choose the right one?
Well, that why I’m here to guide you.
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#staysafe and selamat hari merdeka