A unit trust is a type of 'pooled' investment vehicle. What this means is that an investor in effect puts in or 'pools' his money with other investors'; the collective amount is then invested to buy a range of shares. For example, suppose 100 people each set aside RM$100 for investment. Each investor owns one hundredth of the units in issue. The money - RM$10,000 -- is then invested in a range of assets. Suppose after a year, the fund has grown 20% to RM$12,000. If your unit is a hundredth of the total it will then be worth RM$120.

The Benefits :
The principle behind unit trusts is that small investors enjoy economies of scale: each investor can gain access to a much wider number of stocks than if he had tried to buy them individually.

There is a cost advantage here. To buy all the shares in a typical unit trust portfolio would be very expensive since dealing in small lots in individual shares is pricey. Equally, just to buy shares in a handful of companies would expose an investor to another level of risk entirely.

This is where the unit trust asset diversification benefit comes in. The more companies the collective 'pool' is invested in, the less the performance of each one will affect the whole. So, one of the main fears of stock market investment -- that you risk losing all your money - is much diminished.

Unit trusts may also invest in areas that may be difficult to access as an individual, usually for reasons of size, liquidity or legislation. They also offer opportunities through such things as theme or sector funds (eg technology) to approach investing in new ways. Even for serious private investors, this is a huge advantage. Unit trusts aren't therefore just for beginners.

But who manages the money ? This is where the professional fund manager comes in. Every unit trust is run by a fund management group. Some are attached to large organisations, like banks, while others are independent. It is their decision which stocks to choose for the portfolio, and when to buy and sell.

Of course there is a small price for this. All funds typically levy an annual management charge. Usually this ranges from about 1.0% to 1.5% of the value of the fund's assets, depending on what they are (eg equities or bonds) and where they are invested. However, it gives ordinary investors access to expertise that they couldn't otherwise afforded.

Unit trusts are convenient. Fund prices are quoted daily in the newspapers (and increasingly on web sites). Dealing can be done during usual office hours. Moreover, there are no restrictions on how long an investment has to be held before units can be sold. Investors can easily buy extra units or sell down their holdings piecemeal. They don't have to depend on other buyers in order to sell their units either, because units are created or cancelled depending on demand. If you want to sell, the Manager has to buy the units back.

Last, independent trustees oversee unit trusts to ensure the management of assets is in line with explicit fund objectives. This affords investors protection. In Malaysia, fund managers have to send unitholders a statement every quarter. So as a unitholder you'll always have a fair idea of what your units are worth.

Anyone interested in growing their long-term wealth. Unit trusts cover a spectrum of investments, are run by professional managers and offer convenience at low cost - you can start investing from as little as RM$1000.

You can invest in one of several ways. By requesting literature direct from the asset managers (by post), visiting them in person, buying via an agent, or going direct to one of their agent banks or brokers. Internet transactions will also become an option in the near future.

Typically you must pay an initial charge of around 5%, as well as an annual management fee of between 0.75% and 1.75% on the underlying fund.

No. The initial charge or 'front-end load' (FEL) is the difference between separately quoted buy-sell (offer-bid) prices. Some fund managers prefer to waive or impose a reduced FEL but include a 'back-end load' or redemption charge on disposal of units.

Annual management fees accrue on a daily basis (along with miscellaneous trustee and registrar fees) and are deducted from a fund's net asset value BEFORE the fund's price is calculated each day.

The price you pay will be the quoted offer price on the day you invest. However, it may take some time before you receive confirmation advice - especially if you invest in an approved fund using your EPF account. Cash settlements usually take three to seven working days.

If you want to know the value of your investment, check the bid price of units in the financial pages of the main newspapers (where most funds are listed), or on a dedicated web site. Unit trusts deal on a daily basis - so prices will tend to move every day.

The majority of funds have a daily cut off time (usually noon or 5pm); all investments made on that day are valued at this point, with the manager using the valuations in underlying markets to calculate prices. If the fund invests in Europe or the US, there will be some delay because of the time difference. For this reason valuations usually appear in newspapers two days in arrears - so, for example, a Monday price will be printed on the following Wednesday.

Whenever you like. Unit trusts do not conventionally impose any minimum duration on investments. Indeed, one of their advantages is that they provide liquidity, often in markets that would be hard to access directly. Fund managers have to buy back units if you wish to sell.

No. Under Malaysian law there are no capital gains taxes.

Funds earn money from underlying dividends and profits the managers take on holdings. Many funds reinvest these gains; others hand back this money to unitholders via distributions. You can often choose to have this money reinvested or paid out. Any income paid out will be treated as income for tax purposes.

Unit trusts are generally long-term investments, the actual timing depending on the underlying assets - but three to five years would be a minimum. Why? Because unit trusts offer diversification of risk via a portfolio of stocks; as such, it will take time for the portfolio to outperform. For the same reason unit trusts are inefficient for short-term trading - stick to direct equities if you want to punt.

There is no right time to buy. Too many investors imagine they can perfect the timing of their investments - so they become preoccupied checking the fluctuations in daily prices before committing. This is folly. Professionals don't do this because they know that markets discount expected news and there are anyway lots of irrational influences that can move markets. If, after doing your research, you feel comfortable with a fund, invest.

Can you afford to lose everything you invest? How long can you afford to be without your money? Funds exist for all levels of risk, from bond and balanced funds to equity growth funds investing variously in single countries or sectors, regions and globally. Find one that matches your investment time horizon and your risk tolerance. Ideally, look for a fund run by a strong group, with a clear, consistent style of investment and a decent track record. This will never guarantee returns, but it will help minimise unnecessary risks. Last, be wary of fashionable investment themes: it is a cliché that private investors buy at the top of a market - and sell at the bottom.

Consider splitting an investment across several funds, including those investing in markets with low correlation to one another. If you are really nervous about a market, you may like to consider a monthly savings plan.

There are three main influences on returns: the behaviour of markets, fund manager performance and, for international funds, currencies. Don't rush to judge a fund without considering the market(s) it has invested in, or, worse, compare it with another in a different sector. There can be good funds in poorly performing areas and vice versa. Funds are benchmarked against indices; find out how the benchmark performs (but be sure it is an appropriate gauge).

Returns are correlated to risk, and to the length of time an investment is held. Investors can be unrealistic, expecting too much and too soon. If, for example, you invest in a guaranteed fund, don't expect an equity-type return.

Many investment newcomers make the assumption that a fund costing, say, RM$1.50 a unit is more expensive than a new one at US$1 a unit. This is incorrect. The higher price of the first fund reflects the fact that its underlying assets are worth more. The fund might have taken five months or five years to appreciate to that level. There is no reason to think that a new fund at RM$1 offers a better prospect for success when it is investing in the same market and similar underlying assets (and yet has no track record).

Once invested, the hardest part is to know when to take profits or cut losses. Markets are proverbially a pull between greed and fear, and it is these emotions that can impel investors to hang on to paper gains too long or sell too quickly. Ask yourself simply if you have given an investment enough time to perform, and, if it has, whether it has matched your expectations.