The Performance of Unit Trusts in Malaysia: Some Evidence

Abstract

Institutional investors such as pension funds, insurance companies and unit trusts (mutual funds) play an important role in providing investment capital in the financial markets of eseloped and developing economies. The term unit trust is equally applicable to the term mutual fund and investment trust in the Malaysian context. In America, unit trusts are Known as mutual funds whereas in other countries, they are more popularly referred to as nit trusts. Unit trust is a general name which may be further classified according to its objective such as growth, income and balanced trusts, each of which can be reclassified according to sectors such as property trusts, sectoral trusts, equity trusts and gilts. Irrespective of their specific objective, the general objective of a unit trust is (0 pursue investments which generate the highest return per unit of risk or lowest risk per unit of return. A unit trust serves as a medium through which small investors can acquire a share in a diversified portfolio of corporate securities, thereby pooling the risks of capital depreciation with other small investors who form a part of the unit trust. It therefore plays an important role in the development of the private capital market through mobilising small savings for active participation in the corporate securities market. Investors in unit trusts benefit from their investment in terms of the opportunity to spread risk over many different securities (portfolio diversification), professional management of their investment. It relieves them of their time and energy to do research and share trading, There is also liquidity of investment as unit trusts are obliged to create a ready market to redeem investors’ units.