Oran Hall | How to invest in unit trusts

QUESTION: I am currently going to start university. I am seeking your advice on opening a unit trust account. I am not familiar with all the terms of investment and business, but I am interested in investing, Any advice for someone who is a beginner in the investment world, especially one with little to no background in investing?

– Lacian

FINANCIAL ADVISER: Before opening an account with a unit trust in order to commence investing, it is important to learn some basic things about unit trusts and to be clear about your own objectives.

There are six unit trusts in Jamaica offering a wide range of choices through their 47 funds or investment portfolios. Each portfolio individually or jointly with other portfolios may meet the investment objectives of investors.

To determine your objectives, you should know why you want to invest. If you are primarily interested in strong growth or appreciation, especially over the long-term, you should find capital growth funds, which invest in equities and real estate attractive. These offer a good hedge against inflation.

If you want a steadier increase in the value of your investment with less risk, you should pay attention to money market and bond funds. Money market funds generally invest in short-term fixed-income securities, and bond funds invest in long-term fixed income and variable rate interest-earning securities.

Blended or balanced funds invest in securities capable of appreciating in value and interest-earning securities, but it is worth knowing that no fund is likely to be invested fully in one type of security. Capital growth funds may include interest-bearing securities, for example.

Some funds invest in securities denominated in foreign currencies thus giving a hedge against depreciation in the value of the Jamaican dollar.

Unit trusts do not generally distribute income. The income earned is generally reinvested, thus facilitating the increase in the value of the funds and the unit values. But there are a few funds that do distribute income, thus facilitating a flow of income to the investor.