Risks of Unit Trust or Mutual funds Investing

It is important for an unit trust consultant like me to let my investors understand some of the risks that you may faced before investing. However, I can introduce funds that are suitable for you according to your risk profile, so that you can have better planning for your financial situation. Basically, funds with higher return are always embedded with higher risks; funds with lower return are mostly embedded with lower risks.


Below are the risks of investing in unit trusts:

Investment risk – e.g. market volatility, movement in stock market for equity funds.
Returns are not guaranteed – past performance of a unit trust fund is not a guarantee/ indication of future performance. However, it can be a good reference for you to analyze the performance of the fund.
Risk of non-compliance – risk that specifically occurs when a Syariah-compliant security is reclassified as a Syariah-non Compliant Security.
Managers/ management risk – risk that manager may not adhere to the investment mandate of the respective fund.
Risk of unit trust company unable to meet unitholder’s demand to repurchase units – for example, where investment markets are in turmoil and closed.
Risk of changes in legislation – e.g. taxation law that could adversely affect investor.
Risk of changes to unit trust fees and investment policy.
Risk of senior management of unit trust company will change – good investment personnel are short in supply.
Loan/ borrowing/ financial risks
Currency risk – where a % of the value of a fund is invested in foreign currency or assets denominated in foreign currency, the fund may be exposed to currency fluctuation risks.
Country risks – overseas investment of the fund may be affected by changes in the political and economic conditions of the country in which the investments are made. Such political and economic conditions of the country may influence the growth and development of business enterprises and impact the stock prices of listed companies.
Market risk – stock value fluctuate in response to the activities of individual companies, and general market or economic conditions.
Liquidity risk – defined as the ease with which a security can be sold at or near its fair value depending on the values traded on the market.
Credit/ default risk – specific risk in investment in bonds. It refers to an issuers’ ability to make timely payments of interest and principle.
Inflation risk – the risk of high inflation which affect the real return from investment.
Interest rate risk – generally, bond fund prices move in the opposite direction of interest rates. If interest rates rise and bond prices fall, this will lower the value of investment.
So, you may say, "Wow, 16 risks! So risky, why should I go for that?" Before you get any answer from me, ask yourself also, why so many people still invest in unit trusts? Yes, every investment is carrying some risks, no matter you invest in stock market, or properties. For zero risk investment, you can put your money in fix deposit or EPF; this is not investment but saving, and your money is depreciate in value due to inflation.


Unit trusts investment risks can be minimized through proper advice and management of unit trust consultant who has undergo proper training.

Of cause, I have some effective methods that can help you to gain maximum profits from unit trusts investment while minimize your risks. So, if you want to learn the way, just make an appointment with me through my email jtankoksiong1982@hotmail.com