Unit Trust

About Unit Trust

Unit Trusts (commonly known as mutual funds in most countries) are an investment vehicle whereby asset management companies (or securities investment trusts companies in Taiwan) solicit a pool of capital from the public by issuing a specific quantity of shares or beneficiary certificates and using the capital for professional investments. In other words, this is a mode of investment through the sharing of risks and profits. Diversification of investment risk is a specific feature of this mode of investment to the extent that market risk and volatility could be effectively reduced. Unit Trusts (or otherwise mutual funds) can be classified into equity funds, bond funds and money market funds.

“Offshore Funds” are funds registered in regions outside Taiwan. “Onshore Funds (Domestic Funds)” are funds registered with the Securities and Futures Bureau of the Executive Yuan Financial Supervisory Commission of the Republic of China. Therefore, the only difference between offshore funds and onshore funds (domestic funds) is the jurisdiction of registration, not the places of investment. For example, Unit Trusts solicited by domestic securities investment trusts companies may invest in European exchanges. However, as they are registered with the Securities and Futures Bureau of the ROC, they are considered onshore funds (domestic funds).

Features of “Unit Trusts”

• Professional Management
  Unit Trusts are managed by professional investment managers. These managers have been trained and they are well experienced in securities investment. They are backed up by a sizeable professional research team conducting long-term and systematic research and analysis on a daily basis on the domestic and international economy, different industries and the operation of the companies and their potential for growth. Together, they can help individual amateur investors to solve the problem of lack of time and professional knowledge or being constrained by inadequate information. Therefore, amateur investors can get a grasp of market trends more effectively and conveniently if they choose Unit Trusts for investment.
• Diversification of Risk
  The basic principle of investment is “Don’t put all your eggs in one basket”. Unit Trusts pool the capital of aggregated investors and invest the capital in a diversified portfolio. For example: investment in stocks, bonds or R/P, or investment in different industries in different countries and different regions like Europe and Southeast Asia. Most individual investors do not have a large sum of capital for investment. As such, they cannot invest to many types of investment or in a number of regions and countries. Unit Trusts are different. They can invest in scores of investment instruments like stocks, bonds or make investments in different exchanges. This helps to effectively diversify risk.
• High Liquidity
  Where specific investors need cash, they may apply for redemption. Usually, it takes 5 to 7 business days to complete the redemption procedure and take back the cash. Therefore, liquidity is high.

Main Types of “Unit Trusts”

Classified according to investment instrument into the following main types:

• Equity Funds
  Equity Funds aim at investing in stock exchanges all over the world, and could be subdivided into global, regions within a particular country and industry funds. The economic and political situation in different regions of the world is varied. Therefore, potential return and risk of stock funds are relatively higher than that of money market funds and bond funds.
• Bond Funds
  Bond funds invest in bonds with different maturities and bond yields. The return of bond funds is relatively more stable than equity funds. Examples are government bonds and corporate bonds.
• Money market funds
  Money market funds focus on the investment in short-term money market instruments. Examples are treasury bills, NCDs, time deposits and RPs. Money market instruments tend to have short maturities and can generate a steady stream of income. This is a relatively low risk investment.

Unit Trust Related Information

• Ways to invest
• Risk and Profit
• Important Matter

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