Why Read the Mutual Fund Prospectus?

A mutual fund prospectus is to a mutual fund what an owner’s manual is to a car. If you want to learn more about what’s under the hood of your mutual fund, check out the prospectus.

If you purchase a mutual fund, you’re assured to receive a prospectus. The SEC requires the fund company to provide you with a prospectus upon purchase of the fund. This prospectus can be quite daunting as it is full of legalese, numbers and jargon. But don’t be so fast to toss it out. The mutual fund prospectus is a valuable tool that contains important information.

Key Information in the Prospectus

Investment Objectives -- The goal of the fund is defined in the prospectus. Each mutual fund has a different goal. One fund may have a goal of income with preservation of capital while another fund’s goal might be long-term capital appreciation.

Investment Strategy -- The prospectus details the strategy of the mutual fund. Does the fund invest in stocks and/or bonds? The strategy section will describe if the fund is focused on US investments or international investments or a combination of the two, known as global investments.

Shareholder Information -- The prospectus provides information relating to the purchase and redemption of fund shares. Minimum account balances and tax consequences of buying, selling, holding, or exchanging shares of the fund are listed in this section of the prospectus.

Risks -- The prospectus describes the risks associated with investing in the fund. If the fund invest in equities, for example, prospectus will discuss risks of investing in the stock market. The prospectus will also list risks of investing in the particular strategy of the fund. For example, the prospectus for the US large cap fund Vanguard 500 Index reads: “Large-cap stocks tend to go through cycles of doing better -- or worse -- than the stock market in general. These periods have, in the past, lasted for as long as several years.” You should read about, and understand, the risks of the fund prior to investing.

Performance Information -- You will find performance information sliced in many ways in the prospectus. The total return for various time periods since inception including: calendar year returns, trailing period returns (1 year, 3 year and 5 year, for instance), and both before tax and after tax returns. The performance data is based on formulas set forth by the SEC which allows you to compare performance from one fund to the next with confidence that you are comparing apples to apples. There is probably no reason for me to mention that past performance doesn’t guarantee future performance (but we can hardly discuss performance without the caveat).

Fees and Expenses -- The prospectus lists the shareholder fees and the annual operating expenses of the fund. The shareholder fees consist of sales charges and redemption fees. The operating expenses -- also known as the expense ratio -- include management fees and 12b-1 fees. The prospectus also includes a hypothetical investment and the impact these fees and expenses would have on the hypothetical investment over time. The hypothetical example will allow you to compare the costs of investing in one fund covered by the prospectus versus costs of investing in other mutual funds.

Financial Highlights -- The financial highlights section of the prospectus includes audited data that is derived from the fund’s financial statements. The data is listed in a table and includes a reconciliation of the beginning period net asset value and ending period net asset value (for five calendar years). In other words, what was the fund worth at the beginning of the year, how much did it earn, what were the charges, and how much was the fund worth at the end of the year.

WHY WE SHOULD IN MUTUAL FUND

Before we plan to buy mutual funds, always take a step to understand the pros of mutual funds. This is to ensure how the investment could benefits us and know how to avoid the pitfalls.

There are many reasons to buy a mutual fund. Here are some of the reasons:-

1. Mutual Funds Offer Diversification
The beauty of a mutual fund is that you can buy a mutual fund and obtain instant access to a hundreds of individual stocks or bonds. Otherwise, in order to diversify your portfolio, you might have to buy individual securities, which exposes you to more potential volatility.

2. Mutual Funds are Professionally Managed
Many investors don’t have the resources or the time to buy individual stocks. Investing in individual securities, such as stocks, not only takes resources, but a considerable amount of time. By contrast, mutual fund managers and analysts wake up each morning dedicating their professional lives to researching and analyzing current and potential holdings for their mutual fund.

3. Mutual Funds Come in Many Varieties
A mutual fund comes in many types and styles. There are stock funds, bond funds, sector funds, target-date mutual funds, money market mutual funds and balanced funds. Mutual funds allow you to invest in the market whether you believe in active portfolio management (actively managed funds) or you prefer to buy a segment of the market with no interference from a manager (passive funds and index mutual funds). The availability of different types of mutual funds allows you to build a diversified portfolio at low cost and without much difficulty.

4. Mutual Funds Have Low Minimums
Many mutual fund companies allow investors to get started in a mutual fund with as little as RM1,000. Investors can add their premiums as low as RM100 monthly depends on their objectives.

5. Systematic Investing and Withdrawals with Mutual Funds
It is simple to invest regularly in a mutual fund. Many mutual fund companies allow investors to invest as little as RM100 per month directly into a mutual fund. Money can be pulled directly from a bank account and invested directly in the mutual fund. On the other hand, money can be regularly withdrawn from a mutual fund and be deposited into a bank account. There are generally no fees for this service.

6. Mutual Funds Offer Automatic Reinvestment
An investor can easily and automatically have capital gains and dividends reinvested into their mutual fund without a sales load or extra fees.

7. Mutual Funds Offer Transparency
Mutual fund holdings are publicly available (with some delays in reporting), which ensures that investors are getting what they pay for.

***Note: Please do contact me at 0126624231 or PM if you need anymore details especially investing in Public Mutual. Thanks

Professional Investment Management

A unit trust combines the capital of many investors to employ experienced management in purchasing securities of many companies. The management of a unit trust provides diversification of investments and supervision which few investors could individually afford. Investment management is a full time job requiring specialized knowledge and training. It involves the study of a variety of factors.

Some of the factors which have to be examined are,
1. Comparisons of all industries in the economy
2. Relative studies of companies within a promising industry
3. Personal contact with management of promising corporations
4. Evaluating the effect of international events, both monetary and political
5. Determining the results of government policies on each industry

Professional management is also interested in studying less obvious factors such as wage rates, which might affect the economy or the profitability of certain companies or corporations. It requires careful study of individual companies within the industry to determine which of the many companies offer the best prospects for the investors. It requires comparing this company with the best companies in other promising industries. Since all this factors are constantly changing, re-evaluation and study have to be continuous.

Public Bank net profit better than market projection

KUALA LUMPUR: The country’s third largest bank by assets, Public Bank Bhd, saw net profit rise 3.7% to RM678.23mil for the quarter ended Dec 31 compared with a year ago on higher loans and deposits growth. Revenue for the quarter came in at RM2.49bil.

For the financial year ended Dec 31, 2009 (FY09), net profit was down 2.47% to RM2.51bil on revenue of RM9.71bil, which was 7.47% lower than FY08 after taking into consideration a one-off goodwill income of RM200mil in respect of the bancassurance distribution alliance with ING Asia/Pacific Ltd.

Excluding the one-off income, the bank’s underlying operating pre-tax profit improved by 4.5% for FY09 compared with FY08.

According to analysts, the bank’s net profit was above market expectations. The market had projected a net profit of RM2.41bil but net profit for FY09 came in 4.14% higher.

Earnings per share (EPS) for FY09 stood at 73.3 sen with the EPS for the quarter under review at 19.7 sen, representing a quarter-on-quarter uptrend with net return on equity at 26.1%. The bank also declared a second interim cash dividend of 25 sen less 25% tax and a share dividend to be distributed from treasury shares on the basis of one share for every 68 existing shares held.

OSK Research Sdn Bhd analyst Keith Wee said in a report that restraint in future dividend payout and concerns over the need for additional capital and hence more subdued returns on equity growth would likely cap share price performance in the immediate to medium term.

He said the bank’s management had indicated that future dividend payout ratios could be at a more realistic 50% to 55% (versus the 79.3% payout in FY09) due to the lean core equity capital and potential increase in new regulatory requirements under Basel III.

According to chairman Tan Sri Teh Hong Piow, whose note on the financial results was read by managing director Tan Sri Tay Ah Lek at a media briefing yesterday, the bank’s improved profit was attributable to continued strong growth in net interest and financing income, up10.2% to RM4.71bil.

Teh said this was despite the negative impact on net interest margins arising from the reduction in the overnight policy rate on three occasions between November 2008 and February 2009.

He added that loans grew by 14.4% to RM137.6bil supported by domestic loans and advances, which expanded strongly by 16.8% driven mainly by residential property, passenger car and commercial financing to small medium enterprises (SMEs), making up 78% of the loan portfolio as at the end of 2009.

Teh said domestic loan approvals and loan applications for the year advanced 21.9% and 26.3% respectively compared with FY08. “Housing loan approvals were particularly strong, recording an increase of 39.3% in 2009,” he said.
Meanwhile, Tay said there were no immediate plans to acquire any banks despite the current spate of news on mergers and acquisitions in the local banking scene.

“We plan to open new branches in 2010, with two more in Hong Kong, one in Shenzhen, five in Cambodia, two in Vietnam and one in Laos,” he said, adding that overseas operations contributed 7.2% to pre-tax profit last year.

Tay said there were plans to increase overseas contributions to 15% over a three- to five-year period. “Overall, the bank is targeting loans growth and advances of 14% to 15% or RM20bil for 2010 with contributions from residential property, passenger car and SME financing remaining the main sources of growth,” he said.

Tay said net interest margins were expected to remain stable due to a stable interest rate environment, steady demand for loans and ample liquidity in the system. “We expect the overnight policy rate to remain low as inflation is low and there is a need to support the economic recovery,” he said.

Public Mutual: Malaysian equity market fairly valued

MALAYSIA'S stock market valuations look stretched but builders and exporters may shine, helped by a recovering economy at home and abroad, said Malaysian fund manager Public Mutual.

The country's biggest private fund management firm, with RM34.3 billion in assets under management, is bullish about equities in China, Australia and Singapore, said chief executive officer Yeoh Kim Hong.

"In terms of valuations, the local market is fairly valued," said Yeoh.
Malaysia was one of the worst-performing stock markets in Asia last year, ranked fourth from the bottom. The country's benchmark share index is trading near its 10-year average price-to-earnings ratio of 16.7 times, Yeoh said in an e-mail interview.
Public Equity Fund, which invested mainly in Malaysian stocks, outperformed the FTSE Bursa Malaysia KLCI index over the past 12 months, with a total return of 59.4 per cent, compared with the index's 48.4 percent return during the same period, data on Public Mutual's website showed.

For 2010, investment themes are expected to be centred around the country's economic performance, said Yeoh."Investment themes in Malaysia include beneficiaries of the pick-up in construction activities, resources stocks as a hedge against inflation and selected export driven stocks on the back of a recovery in global demand," said Yeoh.

Trade-dependent Malaysia may see its gross domestic product (GDP) expand by 5 per cent in 2010 after shrinking by an estimated 3 per cent in 2009, a Reuters poll on 15 economists showed this month. Public Mutual holds 30 million shares in palm oil exporter IOI Corp on the Malaysian stock exchange, Thomson Reuters data showed.

It also owns 8.6 million shares in IJM Corp, the country's largest construction company by assets. Elsewhere in Asia, Yeoh said her firm likes China, Australia and Singapore. "Despite the Chinese government's recent tightening measures to slow credit growth, we are optimistic about the long term prospects for Chinese stocks," said Yeoh. "We are also positive about the outlook for Australia and Singapore which are positioned to benefit from the anticipated global economic recovery," she said.

In terms of sectors, Public Mutual prefers consumer, infrastructure and natural resources stocks in the region, she said. Yeoh said her firm will be selective in investing in Asia's telecommunications sector, which had underperformed in emerging as well as developed markets in the past year. "Broadly, the growth prospects for telecommunications companies are constrained as penetration rates are
generally high in most major markets," she said. "Telecommunications stocks tend to be perceived as yield plays and laggards during an economic recovery," she added.
Public Mutual has about 60 million shares in Malaysia's Axiata, which owns telecommunications assets in many fast-growing markets such as Sri Lanka, Indonesia and India.

The fund manager also owns 5.96 million shares in DiGi.com, the smallest mobile provider in Malaysia. -Reuters

NOTE:Copyright © The New Straits Times Press (Malaysia) Berhad, Balai Berita 31, Jalan Riong, 59100 Kuala Lumpur, Malaysia.

Selecting The Right Unit Trust - How Do I Find A Unit Trust That Fits My Objective?

It used to be simple selecting a unit trust. Today, there are a multitude of different unit trust funds available in the market that making that choice is no longer easy. Perhaps a simpler way is to first identify your investment objectives. If you want your money to grow a larger sum in the future to pay for an objective and your risk tolerance is higher, you may choose a growth fund to do the job. On the other hand, if you need an ongoing income stream to pay for expenses and your risk tolerance is low, a better choice would be a bond fund. You may have different investment objectives, risk tolerance and time horizons at any one time, which warrants owning a mixture of different unit trust funds for different investment purposes.

Why Should I Start Investing Today?

Today's decision should depend on tomorrow's needs. There is a direct relationship between the amount of money you need to accumulate and the number of years you have to do it.

For example, if you plan to have a RM120,000 education fund within 20 years and expects an annual rate of return of 12 percent, you have to invest only a little over RM120 a month. Wait another 5 years, you will need over RM240 a month. Procrastinate another 10 years, you will have to put in almost RM1,470 each month!

Time can be a real asset when planning for a child's education or our retirement. The more time we have to save, the fewer ringgit we need now. Do not let time slip away.