254) How to Increase Your Unit Trust Units Easily?

254) How to Increase the No of Unit Trust Units Easily?

This is an interesting question that will always excite Unit Trusts Consultants and Investors.

There are few ways as listed here, from the most difficult to the easiest..

1) Invest more money

Basically means you buy more units and accumulate more. The more you invest, the more units you get. 

2) Reinvest the Distribution

When the fund declared distribution, do not pay out to your bank account.Inform the Unit Trust Management Company to buy more units using the distribution amount.You can set it to be Auto-Reinvest for you to accumulate more units.

3) Invest into Funds with lower Unit Price

Number of units = Investment Amount / Unit Price

For example:

Assume Service charges are calculated separately.

Fund A is RM0.80 per unit. 

When you invest RM1,000, you will get 1000/0.80 = 1250 units.

Fund B is RM0.25 per unit. 

When you invest RM1,000, you will get 1000/0.25 = 4000 units.

Investing into cheaper units will give you more units.

4) Switching

Using the same formula above, you will get more units when you SWITCH from a higher unit price into a lower unit price funds.

Using thee same example above. 

Assume Service charges are calculated separately.

.

When you buy into Fund A, you get only 1250 units.

When you switch to Fund B, you get 4000 units.

An immediate increase of 4000 - 1250 = 2750 more units.

This example is also to show you that Number of Units does not tell the full story.

The full formula is:

Asset Value =  No of Units x Unit Price

Units Accumulation is only half of the wealth story.

For an example outside of unit trust, we can use cars.

Do you prefer 1 car or 10 cars?

You definitely will ask which car types. 

You will take 1 car if the car is a Lamborghini Huracan as compared to 10 Perodua Kancils.

(I apologize to Perodua Kancil and their owners)

Lamborghini Huracan

Perodua Kancil

Now you know why Quantity alone is only half of the equation.

More related articles:

Lower vs Higher Unit Price of the Unit Trust Funds
https://highlevelrules.blogspot.my/2018/01/lower-vs-higher-unit-price.html


Benefits of Distribution in Unit Trust:
https://highlevelrules.blogspot.my/2017/11/benefits-of-distribution-in-unit-trusts.html

Difference between Dividend vs Distribution

https://highlevelrules.blogspot.my/2017/11/dividend-vs-distribution.html 

  

253) Why My Unit Trust Fund Did Not Give Distribution?

Why my fund giving less distribution this year?

Why my fund distribution is giving less than the other fund? 

Why No Distribution this month?

Is my fund not as GOOD as compared to the other fund?

Many Questions about a fund comparing to another fund. It reminds us of the old English Proverb

"The grass is greener on the other side"

When you compare different funds on the distribution, do take these points into considerations:

1) Financial Year End

A Unit Trust fund normally gives distribution on the fund's Financial Year End. If a fund did  not declare a distribution last month, most probably that it is not its financial year end yet.

There are funds that give yearly, semi-annually, monthly or incidentally. It depends on the fund's distribution policy. 

A Unit Trust Management Company will have different funds to have different Financial Year Ends. It is basically to avoid overcrowding or overloading all the funds reporting at the same time.

2) Distribution Policy

Every fund has its own distribution policy stated in the prospectus. Depending on the policy, distributions are paid out accordingly.

a) Annual - once a year on best effort basis

b) Semi-Annual - twice a year on best effort basis

c) Monthly - monthly on best effort basis

d) Incidental - depend on market performance

The Unit Trust fund give or not give any distribution is decided by the Fund Manager. It depends on the fund strategy, accumulated values, market conditions and future market outlook.

There are a few main fund types: 

a) Equity

b) Mixed Asset/Balanced

c) Bond

d) Money Market

Depending on the fund types, the distribution policies are also different. Generally, Equity funds tend to have more incidental distribution policy. Bond and Money Market funds tend to have more Annual distribution policies.

3) Fund Price

The distribution amount to be paid out also depends on the current fund unit price. 

You can expect a higher distribution amount from a higher fund price.

For example: 

Fund A: $1.00 fund distribute out $0.05 is 5% of its fund price.

Fund B: $0.25 fund distribute out $0.05 is 20% of its fund price.

It will be more difficult to distribute 20% as compared to 5%.

Note: Distribution Yield is calculated as Distribution amount/Fund Price after distribution

Fund A Distribution Yield = $0.05/$0.95 = 5.3%

Fund B Distribution Yield = $0.05/$0.20 = 25%

As a summary, Distribution payment is not an indication of the fund's performance. 
Check the fund's actual performance by reading the Annual Report and Performance Graphs.

Distribution payment is more on the Fund Manager's fund management strategy.

Do focus on your:

a) Investment objectives

b) Time Horizon

c) Risk Profile

For more information, please consult your Unit Trust Consultant.

More related articles:

226) No Distribution? Did the Fund Make Money?

https://highlevelrules.blogspot.com/2019/06/226-no-distribution-did-fund-make-money.html

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.

http://highlevelrules.blogspot.com/2017/11/dividend-vs-distribution.html

133) Benefits of Distribution.
http://highlevelrules.blogspot.com/2017/11/benefits-of-distribution-in-unit-trusts.html