Oran Hall, Contributor
QUESTION: In your response to Ronique in your column of September 23, you held back on informing the reader of the minimum initial investment one is required to make with the other three money-market funds you mentioned.
PFA: Thank you very much for that observation. Let me use this opportunity to say more about unit trusts.
Barita Unit Trust requires that investors make a minimum purchase of 100 units. Payment may be made by cheque and debit card. Investors who desire to invest on a programmed basis may pay by post-dated cheque or salary deduction.
Capital and Credit Fund Managers sell an initial minimum of 500 units and accept payment by cheque and debit card but also facilitate programmed purchases by salary deduction.
The Sigma Solution/Fixed Income Fund is operated by Pan Caribbean Financial Services. The required initial investment is J$50,000 and standing orders are accepted to facilitate the monthly purchase of units.
Investors may pay for units in the Scotia Premium Money Market Fund by cheque, debit card or standing order. Investors already having an account may use Internet banking to pay for their units.
The unit trusts do not generally have a wide distribution network, so this limits accessibility. Nonetheless, in most cases, the minimum initial purchase and subsequent purchase levels are sufficiently low to be attractive to small investors who are able to derive better yields than would have been obtained had they invested their funds directly in the various instruments.
Last week, I mentioned that the performance of the funds tends to vary, and that is to be expected. One reason for this is that some managers are more aggressive than others. They are not required to hold their investments to maturity, so changes in the level of interest rates may provide trading opportunities, which some managers seize.
For investors interested in tax-efficient investments, the money- market unit trust is an attractive option because it can qualify as a long-term savings account. This makes it quite attractive to pensioners, particularly because they are able to access 75 per cent of the interest earned and are able to determine the intervals at which they collect interest payments.
Organise your investment
Families using the unit trust as long-term savings accounts should organise their investment to maximise their tax savings.
The unit trusts are quite accommodating and are willing to facilitate investors who wish to invest monthly if they can arrange payment by standing order, for example. This is an ideal way to save or invest.
Savings should be accorded a position of priority rather than being seen as residual. Saving or investing even small amounts regularly and over a long time is one way to build wealth.
Investors who have an interest in investing in pooled funds denominated in foreign currency may invest in a wide of array mutual funds which are marketed by local securities dealers.
Investing in several types of unit trusts and mutual funds is one way to increase the level of diversification in an investment portfolio. Bear in mind that each fund does have some level of diversification.
Investors whose main investment objective is capital appreciation should also consider the merits of investment instruments which yield little or no appreciation to give some stability to their portfolios.
Generally, unit trusts are worth a place in the investment portfolio of persons who do not have the time, knowledge or skill to manage their own portfolio. Investors need not invest all of their funds in the products of one unit trust.
They can diversify by management, by investing in more than one unit trust.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial email@example.com.