149) Lower vs Higher Unit Price

149) Lower vs Higher Unit Price of the Unit Trust Funds

Which is Better?

There are ideas shared about the differences between lower priced vs higher priced Unit Trust funds.
There are some who believed that the higher priced units had already became expensive and it is time to sell them.

There may be some truth in that idea. Let us check out with real funds performance to test.

First of all, you need to understand how and why the unit price had gone up.
A fund Net Asset Value increased because of these reasons:
a) the stocks and bonds value had increased due to market uptrend.
b) the companies declared good dividends to the share holders.
c) the bonds gave high coupon payments.
d) the money market instruments gave high interests.

Here are few consideration for you to find out.

a) fund had increased in value over a short time. 
This means that the stocks in the fund had increased in value in a short time. It is possible that the market sentiment is very positive. The stocks can be considered as overvalued now. So, investors who practice "buy low, sell high" want to sell while the market is still high. This is a good strategy.

After selling the stocks, there are 3 possibilities there after:
a) if market goes lower, selling early was good.
b) if market remains same, selling early made no difference.
c) if market goes even higher, selling early was bad.

b) fund had increased in value over a long time.
This means that the stocks in the fund had slowly increased in value over a long time. The stocks grew in value as the companies made profits over the years. Investors who practice "buy and hold" will slowly see their investments grew in value.

So, which scenario happened that increased the Stock prices? When the stock prices increased, the equity funds will also increased in values. When you are familiar with the market directions, then the answer will be clearer.

Now, let's discuss on the idea whether it is better to invest into funds with lower or higher unit prices.

Let's do a Case Study.

You have $1,000. There are 5 funds choices to invest. All the funds are equity funds and have 5.5% initial service charge.  

Which fund will you invest? Fund A, B, C, D or E?

Please decide to invest into one of the funds before you read further.


Decided? Then read further.



After 1 year, your $1,000 had increased in value.

However, different funds gave you different returns. When you decide to redeem the investments, you will get the amount as per 2 Jan 2018 NAV value.

This clearly shows that you cannot predict which fund will be the BEST performer.

A fund with lower unit price may perform better or worse than other funds. In the same way, a fund with higher unit price may also perform better or worse than other funds.

The BEST fund was Fund C, while the WORST fund was Fund D. Although fund A had the highest unit price, the fund performance was the Second Best.

For investment in equity, the market is unpredictable.You cannot be sure that the lowest fund price will perform the best. Or, the highest fund price will perform the worst.

It is more important that you diversify your investment into different equity, bond and money market funds.

Do contact your Unit Trust Consultants for more detail discussion on which funds are more suitable for your investment objectives.