The fundamental rule of risk applies, where higher risk is a directly correlated with higher returns and vice versa. Investors must first and foremost understand the risk of unit trust investment before investing to avoid future distress. Risks can be quantified in 2 major categories, general risks and investment risks.
General risks are risk largely influenced by the economic forces, such as management risk, liquidity risk, loan financing risk, compliance risk and inflation risk.
Investment risk, as its name denotes, are risks related to the management of the fund, for example, fund management risk, bond credit risk, interest rate risk, market risk, specific risk and so on.
Understanding the different risk level can help choose the fund that is compatible to your financial needs and risk appetite. Equity type funds have the highest risk among the 3 categories of funds, followed by balanced type funds and fixed income type funds.
Saturday, November 15, 2008
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