There are two main categories of unit trusts: income and growth.
While the primary objective of growth unit trusts is providing potential capital appreciation, income unit trusts focuses mainly on generating high income distributions to investors.
This is usually accomplished by investing in assets, such as stocks which show a strong dividend paying ability, or high coupon bonds. Examples of income unit trusts include:
- Equity Income Funds
- Income Bond Funds
- Money Market Funds.
Equity income funds generally invest in blue-chip shares that are stable and generate consistent cash flow. These may include shares of established banks, utilities and telecommunication companies, as well as other industrial sectors.
Income bond funds usually invest in bonds with high coupons and excellent credit ratings. The financial stability of the bond issuer is an important consideration, as the ability to pay out coupon interest consistently, is necessary to ensure the funds can generate income on a regular basis. Components of income bond funds can include government bonds, corporate bonds, municipal bonds and other types of bonds.
Money Market Funds usually consist of secure income instruments like fixed deposits, treasury bills, and commercial papers. It is suitable for investors who like safe assets which can be easily converted to cash. However, money market funds usually offer a lower return, than equity income funds and income bond funds. Therefore, investors who want a high potential return could be better off investing in equity income or income bond funds.
If you need investment advice, do contact your trusted FLA Organization Financial Planner for more valuable insights today.
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