Unit Trusts in Hong Kong: Why You Should Invest and How to Get Started
Are you interested in investing in mutual funds? It is a great investment option, especially if you plan to invest in Hong Kong.
The best way to get started in this investment scheme is to know what it is all about.
According to the data provided in HKTDC.com, Hong Kong is widely recognised in Central Asia as the leading centre for fund management. In fact, the end of 2014 showed that the fund management business grew to US$2.27 trillion – a 10.5% increase from 2013. Assets managed by private banks are worth US$397 billion. As of June 2015, there are 2,063 unit trusts in the region. These are all authorised by the SFC or Securities and Futures Commission.
But what exactly are mutual funds?
Think of it as a company. Also known as unit trusts, this investment scheme gathers a group of people with shared interests who will pool their money together. The fund that will be created will be invested in shares, bonds, and other investment schemes. All the members of the company will own it since all of them invested in the fund. The “company” is headed by a fund manager who decides the specific securities that they will invest in.
There are three ways that the unit trust can make your investment profit.
The first is through the growing value of the dividends (shares) and the interest from the bonds. When the fund profits from the investment, it is paid out to the investors through a process of distribution.
The second way that you can profit from mutual funds is through the capital gains from sold securities. Sometimes, if the fund manager deems it to be beneficial based on market trends, they will decide to sell securities and the gains from that transaction will be paid off to the investors – again through distribution.
The third-way unit trusts can profit is when the shares of the fund increase in price. If the fund, in general, grows in value, you can opt to sell your shares of the mutual fund for a profit. You can use that gain and invest it in something else.
Why invest in unit trusts in Hong Kong?
There are 4 important reasons why you should invest in mutual funds in Hong Kong.
Your investment will be managed by a professional.
Fund managers usually have 3 to 5 years of experience in managing investments, specifically in identifying what is risky and profitable. These professionals are trained to review the market and decide which investment strategy will give the most profit. Their experience will also help them access the information that will help them make smart decisions about the unit trust.
You have access to international investments.
Regardless if you are a first-time investor or a veteran, mutual funds can provide you with a global investment opportunity. Of course, this will depend on the unit trust you will invest in. But it should be easier for you to invest in the international market because an experienced fund manager is handling the specific investment decisions.
You can easily liquidate your investment.
In case you need to liquidate your investment, you can easily do so by selling your mutual fund or trade it. This happens every day, so you have the option to do it anytime there is a need – or when it suits your investment goals.
Your investment will be diversified.
The final benefit is diversity. Mutual funds are invested in several securities – often around 50 in all. The fund manager will invest in shares, bonds, and other money-market instruments. He or she can offset losses from some shares with those that have huge gains in the market.
Tips when investing in mutual funds for the first time
To get started on mutual fund investing, here are the important things that you need to do.
Know your goals and risk tolera]nce.
Before you do anything, make sure you know your investment goals and the type of risk your finances can take. This will help you choose the right investment scheme. In general, mutual funds give a moderate return with a low risk. Knowing your goal will also determine if you will invest in a short-term or long-term capital gain. Usually, long-term investments will give the most return – but how long can you let your finances tied to that fund? If it is to be used for retirement, a long-term gain is advised.
Decide the type of fund you will invest in.
By understanding the risk tolerance and investment goals, you can narrow down the 2,000 mutual funds available in the market. If you are after short-term gains with a steady income source, mutual funds from government or corporate bonds will suit you best. There are funds that focus on specific industries while there are those that invest in different sectors. Choose based on your specific risk and goals.
Compare the charges and fees.
Obviously, fund managers have to earn and they do that through fees – or front-load fees. This is like a sales commission based on the profit gained by the mutual fund. The front-load fee is usually a percentage of the Net Asset Value (NAV) price of the fund. Take note that buying and selling can also be charged with fees – so make sure you understand the costs you will encounter with every fund manager. It is important to assess the ratio of the cost to the intended gain of the mutual fund.
Evaluate fund managers.
According to the data provided by the Securities and Futures Commission, a good fund manager should have sufficient resources for financial, technical, and manpower needs. Not only that, they should have the right amount of experience and a reputation for integrity and honesty. Look for fund managers from the website of the SFC to find the right professional to manage your investment.
Although mutual funds are managed by a professional, it is important for you to keep your eye on the market. Read about the industries that the fund is investing in. While the fund manager decides on the specific securities to invest in, it is up to you if you want to buy or sell your shares from a mutual fund. When you perform a thorough due diligence before investing, you can expect to reap rewards that can really benefit your financial future.Recommend0 recommendationsPublished in