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Unit trusts: Making sense of fund documents and reports

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29 Oct 2018 | 3 min. read

When you buy a unit trust or fund, you'll receive documents such as a prospectus, product highlights sheet and annual reports. Find out what to look out for in the documents and how to use the information.

Key takeaways

  • When you are offered a fund, do read the prospectus and product highlights sheet (PHS) you receive.
  • Read the fund manager's fund reports and factsheets to monitor how your fund is performing.
  • Take note of any changes to the fund's holdings and whether these still match its stated investment objective.

Prospectus and product highlights sheet

When a fund is offered to you, it must be accompanied by a prospectus and a product highlights sheet (PHS).

Ask for these documents and read them carefully to understand the fund’s investment objective, strategy, risks, fees, historical performance and other important information. Ask the fund manager or your financial adviser if you have questions.

What to look out for

Here are some of the key items to note:

Investment objective, focus and approach

Check if these match your own investment goals.

Risks

Check if you understand the risks of investing in the fund and whether you ca afford to take them. E.g. how would you cope with losing money?

Performance

While a fund’s past performance is not indicative of its future performance, it is still useful for you to compare the fund’s performance to its benchmark and other funds with similar investment objectives.

You can find information about the performance of various funds and investment-linked products at FundSingapore.com.

Fees and charges

Check what you need to pay and compare them with similar funds.

Subscription, redemption and switching of units

Procedures for these transactions are described in prospectus. Read these carefully.

Regular fund reports

After investing, you can expect to receive the following reports:

When Report

Within 3 months of the fund’s financial year-end

  • Annual reports
  • Annual accounts
  • Auditor’s report

Within 2 months of the fund’s financial half-year end

  • Semi-annual accounts
  • Semi-annual reports

Some fund managers also publish monthly or quarterly updates, or factsheets on their funds. Read these materials to monitor how your fund is performing.

There are other ways to find out how your fund is performing. These include:

  • The financial section of local newspapers
  • Websites of financial advisers and fund managers
  • The Fund Information Service at FundSingapore.com – this provides information about funds and investment-linked life insurance policies available in Singapore

What to look out for

When reading a fund report, do watch out for the following terms:

Return

Shows a fund’s return in previous periods. Note that past returns do not guarantee future performance. Your returns would depend on the fund’s actual performance.

Sharpe ratio

This is an indicator of the risk-adjusted performance of a fund. The higher the ratio, the better the fund’s returns relative to the amount of risk taken.

Inception date

Tells you when the fund was launched.

Latest fund size

Funds with larger asset base are likely to have a lower TER or costs per unit invested.

Price information (1-year high / 1-year low)

Shows the highest and lowest unit prices in the past one year. Provides an overview of price fluctuations of the fund but should not be used alone to assess how risky a fund is.

Volatility

Measure of fluctuation of a fund’s value over a time period. Higher volatility implies higher risk. Make sure you select a fund based on the amount of risk you are willing to bear and can afford to take.

Changes in strategy or approach

In addition, while a fund’s investment objective may not change, the actual investment approach or strategy deployed may change.

Changes in the top 10 holdings of the fund (as shown in the fund’s periodic reports) could indicate that the investment approach or strategy has changed. If you notice that the fund’s holdings do not correspond with its stated investment objective, find out why.

Watch out for how the fund performs compared to its benchmarks. Make sure you understand the charts provided, as well as their limitations. For example, if performance appears to be exceptional over certain periods but not other periods, find out why.

The bottom line

Look out for the key information in a fund's prospectus, product highlights sheet and regular reports. They contain a wealth of information that will help you make informed investment decisions, both before and after you buy.

See also:

Last updated on 05 Nov 2018