225) The Fund Price Dropped. Do You Lose Money?
Recently, there was an angry comment by a Unit Trust investor and published in a local newspaper. The Unit Trust investor was angry because his fund's Unit Price dropped. He had bought the Unit Trust fund in 1994 when the fund price was $1.24.
Currently, the Unit Trust fund price is around the range of $0.40 to $0.45. That is a drop of more than 60% since the day he started the investment.
Do you have similar experience? Even after 25 years (1994 to 2019), you lost 64% (1.24-0.45/1.24) of the fund price.
Does it really mean you lost 64%?
Well, it depends on the fund you invested. For unit trust funds, most funds give out Distributions regularly.
If the investor had requested for Distribution Payout, then the investor should have received the distributions payment money on regular basis. It is part of the funds returns.
If the investor had requested for Distribution Reinvestment, then the investor should have received more Unit Trust units. New units were bought with the distributions money on regular basis.
To know the total investment value, you need to multiple the current number of units with the current unit price. The formula is a shown below:
Total Value = Number of Units X Unit Price
Refer to the Fund Performance graph above, comparing a Unit Trust Growth Fund vs FBM-KLCI since Jun 1994 to Jun 2019. The Growth fund gave a Total Return of 327% for 25 years. That is around 6% Annualized Return.
For FBM-KLCI, it only gave a Total Return of 65%. That is only around 2% Annualized Return.
In Conclusion, do check the Total Value of the investment to determine whether you gain or loss in the investment. Not only based on the fund price.
For more information, please consult your Unit Trust Consultant.
More related articles:
250) Distribution Yield vs Total Return
https://highlevelrules.blogspot.com/2020/05/250-distribution-yield-vs-total-return.html
132) Differences between Dividend vs Distribution.
132) Differences between Dividend vs Distribution.
I am a former unit trust agent. I did part time for more than 10 years. I went around promising potential clients a long term 8% return. I was very confident. I sold many million in Ringgit Malaysia.
ReplyDeleteLast year, I did an analysis on my own investment over 13 years period. Oh Boy! Was I disappointed! It was not even close to 8%. I felt very sorry for most of people who trusted me. I quit as an agent.
I would like to quote the writer,
'That is around 6% Annualized Return.'
Unquote.
At 6% per year, I rather continue with EPF. To unit trust agents, I ask you :- At less than 1% a year, EPF is capital guaranteed, are yours - a capital guaranteed?
My cousin, ex-bank manager for over 30 years, does not buy a single cent of unit trust. She is very clear in her mind. And I only fathomed her last year.
Unit trust companies, you have to do better than 8% and capital guaranteed.
The Annualized return calculation is based on single lump sum investment from the initial to the end date of the report.
DeleteActual investments will have different returns based on the different dates and funds. Multiple transactions (additional investments, withdrawals, switching) will also affect the overall fund performance.