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Stocks vs Unit Trusts – The Similarities and Differences (2021)

Stocks Versus Unit Trusts

Stocks and Unit Trusts are two Common Investment Tools that people are using to grow their money instead of saving them in the Bank Account. So what are the Similarities and Differences between them? I hope this article can help to give you a better understanding.

What Are Stocks and Unit Trusts?


1) When a company needs to raise capital e.g. $1.5 million to develop their business, they may do so by becoming a Publicly-Traded Stock on a Stock Exchange, e.g. SGX through an IPO (Initial Public Offering) and offer shares, e.g. a total of 1,500,000 shares priced at $1 each to Institutions and the General Public,

2) You can buy these shares either through the IPO at the Listed Price (+ one time fee) via the Electronic Share Application (ESA) from your Bank Account (and see if you are lucky enough) or after it is available on the Stock Exchange where you buy from another party (through a Trading Platform) who is willing to sell at the price you want to buy (and subjected to additional fees and charges).

3) You can also get more shares when the company does a Stock Split (e.g. 3,000,000 shares from the Previous 1,500,000 and at a new Price of $0.50 from the previous $1) or less share through a Reverse Stock Split.

4) Another way to get more shares is when you are given the option to convert the declared dividends into additional shares.

Unit Trusts

1) A Unit Trust is usually a commercial product that comes from a Fund House, e.g. Franklin Templeton, Schroder, and has a group of Professional Fund Managers who are actively managing all the capital that have been invested by the many people.

2) There is always a story behind a Unit Trust (what they hope to achieve and where they are investing) and most Unit Trusts have a fanciful name as well which makes it hard for you to search and identify when you want to do so. They also do not have any purchase limits (one reason why you will see their growing Fund Size) and their prices (determined by Net Asset Value (NAV) per Outstanding Share) are calculated towards the end of a Business Day and your buying and selling also take place at that same time.

3) Unit Trusts cannot be found on Stock Exchanges, SGX (those that you can find are ETFs) and can only be bought/sold from other channels like Banks, Insurance Companies. Minimum investment amount usually starts from $1,000 and subsequently $100.

4) To get more shares for your Unit Trusts, you can either deposit more lump sum amount, start a Regular Savings Plan or find those that pay Dividends and get it re-invested.

How To Buy Stocks And Unit Trusts?


Before you can buy any Stocks, you will need to open an CDP Account with SGX.

After which you can start buying and selling stocks via Trading Platforms like:

  1. Maybank Kim Eng
  2. PhilipCapital (POEMS)
  3. Tiger Brokers

Other than using Cash to buy, you can use your CPF and SRS monies as well. These options are usually indicated.

Unit Trusts

Before you start your investment, you will need to know your Risk Appetite, e.g. Defensive (scared to lose money), Balanced (steady but can be scared), Aggressive (not scared at all).

There are many channels for you to buy your Unit Trusts:

  1. Banks, e.g. DBS
  2. Investment Platforms, e.g. FundSuperMart
  3. Insurance Companies

Similar to Stocks, you can use Cash, CPF or SRS monies to buy your Unit Trusts. These options are usually indicated.

What Are The Charges When You Buy Stocks Or Unit Trusts?


Charges Include:

  1. CDP Clearing Fee of 0.0325% of your contract value
  2. SGX Trading Fee of 0.0075% of your contract value
  3. SGX Settlement Fee of $0.35 per contract
  4. GST at prevailing rate
  5. Commission Fee (and other fees) imposed by individual brokerage accounts. You will usually pay a lower amount for a Pre-Funded Account or a Custodian Account (e.g. from Tiger Brokers)

These charges apply when you buy or sell your shares.

Unit Trusts

Charges Include:

  1. Initial Sales Charge or Redemption Charges when you buy or sell respectively
  2. Switching Fees when you switch e.g. from Fund A to Fund B
  3. Platform Fees when your Unit Trust is processed and handled by a Platform
  4. Managements Fees – paid to the Fund Managers

All the fees are charged at a certain percentage and vary across the Unit Trusts. On the average, you will be paying annual fees around 1 – 3%.

These charges are applicable when you buy and sell via a Platform. Additional / Different Set of Fees may be applicable if you buy from e.g. Insurance Companies.

What Are The Advantages Of Owning Stocks And Unit Trusts?


1. Long Term Capital Appreciation. If a company has a good product and a good management team which earns the trust of the current and potential shareholders, these will drive the share prices up in the long run and possibly even higher in a right economy.

2. Quick Gain. At times when you are lucky enough (the Charts are showing good signs, your friends got good tips, you got a good hunch)… you get to enjoy a quick gain on your stock investment in a short time. (Please do not buy stocks purely on this point).

3. Dividends. Buying into a good company who rewards the shareholder means you will get regular Dividends. Buying into multiple good ones, these Dividends may even cover or exceed your daily expenses in the long run.

4. Voting Rights. Your share holdings also give you certain percentage of voting rights during the Companies’ Annual General Meeting where you get to vote on certain issues like Appointed Auditors, Share Buybacks, Board Member Appointments.

Unit Trusts

1. Risk Spreading. With Unit Trusts, you get to diversify your risk by spreading the same amount of investment money into Different Assets (Different Risk Classes as well as Locally or Worldwide) instead of one Local Stock.

2. Lower Entry Cost. With Unit Trusts, you get to buy into the shares of many Established, Well-Managed and Profitable Companies which may be priced too high to enter via the Stock Exchange.

3. Flexibility. Investing in Unit Trusts gives you the flexibility to decide how you want to invest (lump sum and/or regularly) and/or how long you want to invest (e.g. sell at the moment you see a 20% gain). Note that this may not be the case for Unit Trusts that are tied with Insurance Coverages (e.g. Investment-Linked Plans).

4. Access to Professionals. You get to tap on the expertise of the group of Experienced and Professional Fund Managers who are actively managing the Fund even when you really know nuts of the stock market and lazy to understand the economy.

5. Dividends. Some Unit Trusts pay Dividends which you may get to cash out as pocket money or re-invest to get more units. Amount of Dividends may also grow with more units accumulated which contribute to your capital appreciation.

What Are The Disadvantages Of Owning Stocks And Unit Trusts?


1. Capital Gain Is Not Guaranteed. You may start to gain profit this week because the company has a good quarter but turn to a huge loss the next week because the company has declared a miserable dividend. All this can happen while you are still thinking whether to hold or to sell.

Another worst case scenario is that you may lose everything due to long term poor performance and SGX ordered a delisting of the stock.

2. Need To Have Knowledge Of The Economy And Industry. Companies that enjoy good market share of a particular industry today may be replaced by another due to the economy or technology. You need to understand these market factors to lock down your profit or risk what you have painfully gained over the years.

3. Need To Have Discipline To Keep Investing. This is the case if you hope to live off from the dividends and you are just starting to invest with a tight budget.

4. Charges and Fees Can Eat Into Your Profit. If you buy into a stock multiple times, the charges and fees will eat into your Desired Profit Margin.

Unit Trusts

1. Charges And Fees. Fund Houses and Fund Managers make their money through ongoing charges and fees. So if you are invested in a fund that’s heavy in fees and charges but prices remain stable, this will eat up your profits year by year. This is different from shares as the charges are upon entry and exit of your investment.

2. Capital Is Not Guaranteed. Unit Trusts are subjected to different risks (e.g. currency exchange rate, economic changes that are beyond the Fund Managers’ control) and these could drive the prices down (possibly below your initial purchase price) and in the long run, the fees will create losses.

3. Not A Short Term Investment. Unit Trusts are not considered as a short term investment tool especially with the fees and charges factored in.

4. Buying and Selling Price Not So Visible. Buying and Selling your Unit Trusts at your Desired Price may not be 100% possible as you only get to know the exact price usually after two Business Days (and you may end up Buying at a Higher Price and Selling at a Lower Price).

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