A guide to mutual funds in Malaysia

Dear Readers

I’m certain everyone has heard of the cliché that mutual fund is overpriced and underwhelming in terms of its returns comparably to investing directly in the stock market.

Undeniably, mutual funds are not for everyone. However, for those clueless beings who are sitting on the fence as to whether you should jump on board the mutual funds bandwagon, allow me share my thoughts about mutual funds and how they can benefit you, as they have for me.

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What is mutual fund?

Mutual fund is a vehicle to enable an investor to pool in his/her money with other investors. The collective pool of monies are managed by a qualified fund manager; not eager college grads.

Mutual funds are highly regulated by the law and are required to provide full disclosure to potential investors in a form of a product disclosure statement (“PDS“). Think of PDS as a prospectus of sort.

A PDS sets out:

  1. the objectives of the fund;
  2. suitability of the fund with regard to an investor’s risk profile;
  3. where your money will be invested;
  4. how the fund is to be benchmarked; and
  5. the sales fees, the trustee fees and the annual management fees, among others.

Should you complete a read of the PDS, you will be fully informed as to the suitability of the fund with reference to your risk profile and investment goals.

Types of mutual fund

There are many varieties of mutual funds. The major ones are:

  1. equity (publicly traded stocks);
  2. private equity (shares of companies which are not traded on the stock exchange);
  3. bonds (debts);
  4. fixed deposit (debt); and
  5. commodities.

With such wide array of types of mutual funds, mutual funds can no longer be described as an one-size-fits-all investment as an investor could easily find a fund to match their risk profile and investment goal.

Why should you invest in mutual fund

Look, no one likes handing over 1%-2% of the total value of your investment/portfolio to fund managers in the form of management fees. That is especially true if fund managers failed to outperform a fund’s intended benchmark or when a fund barely reached your intended investment goals.

However if you have a bad experience in investing directly in the stock market, or maybe you don’t have the necessary discipline or the know-how, or just plain busy, you may find mutual funds a delight.

This is because mutual funds can be an excellent alternative to investing directly in the stock market (especially when investing in equity funds) if you do not have trust issues over the notion of parking your money under someone’s care or you are not disgusted by the idea of paying someone a “fee” for managing your portfolio.

Further, a mutual fund is usually well diversified and often containing a basket of holdings in a variety of stocks or bonds.

Can mutual funds give a satisfying result?

I can answer this with much affirmation.

I am currently investing in mutual funds apart from investing directly in the good ol’ Bursa. I choose to invest in equity funds which are investing in the overseas market.

For example, one of my funds invests in the Asia Pacific region. That region includes China, Korea, Taiwan, Singapore, Malaysia and Australia (I think). The return is decent. About 12-13 percent per annum. It’s currently at 8% only because I’ve diluted the paper profit by investing more money into the fund.

Another fund that I invest is a fund that invests in technology counters such as Apple, Samsung, Tencent, Intel, AMD and the lot. Its main playground is Nasdaq. Up by 23% from a year ago, its performance is nothing short from impressive.

Mind you, profits made from these funds have been deducted of their 1%-2% management fee. If memory serves me well, all fees associated with a particular fund is calculated and deducted daily.

The way I see it, I take advantage of the geographical access that mutual funds provide by allowing me to invest in say, Apple, without actually having to go through all the paperwork and  tax filing associated with a direct purchase of Apple stocks.

Where do I get my funds?

Sales fee associated from the purchase of a unit trust from a bank may be as high as 5%-6%. That means an investment of RM10,000.00 would incur a RM500-RM600 sales fee and you start off with an initial investment of RM9,500.00.

I tend to avoid purchasing unit trust from banks all together. Instead I recommend Fundsupermart. It is a decent online mutual fund distributor with many funds to choose from, good customer support and low sales fee (about 2%-1.75%).

However, if you have to purchase funds from the banks, ask for a discount. Because of the highly competitive nature of the mutual fund industry, some banks are able to offer a 2%-3% sales fee.

Should I be afraid of mutual funds?

You don’t have to be.

Give it a go I say. Test the waters by investing a small portion of your money in a reputable fund of your picking. You’ll never know, the results can be rather pleasant.

 

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