Comparison of Unit Trust Funds, Government Securities, and Fixed Income Bank Deposits
Return Comparison:
1. Unit Trust Funds:
- Average annual return: 8-11% (money market funds), 11.5-13% (Fixed Income Funds)
- Potential for long-term capital appreciation due to compounding effect
2. Government Securities:
- Average annual return: 7%-12% (short-term), 14%-18% (long-term)
- Generally considered low-risk
3. Fixed Income Bank Deposits:
- Average annual return: 5-10% short term
- Typically offers fixed, predictable returns
Risk Comparison:
1. Unit Trust Funds:
- Medium to high risk (equity funds), low to medium risk (bond funds)
- Market fluctuations, credit risk, and liquidity risk
2. Government Securities:
- Low risk (short-term), moderate risk (long-term)
- Credit risk, interest rate risk, and inflation risk
3. Fixed Income Bank Deposits:
- Very low risk
- Credit risk, liquidity risk, and interest rate risk (minimal)
Liquidity Comparison:
1. Unit Trust Funds:
- Medium to high liquidity (open-ended funds.
- Redemption periods vary (e.g., daily, weekly, monthly)
2. Government Securities:
- Medium liquidity (secondary market)
- Trading restrictions may apply
3. Fixed Income Bank Deposits:
- Low liquidity (fixed deposits)
- Penalty for early withdrawal
Other Key Considerations:
1.Unit Trust Funds:
- Diversification benefits
- Professional management
- Minimum investment requirements
2. Government Securities:
- Tax benefits (in some jurisdictions)
- Backed by government guarantee
- Limited credit risk
Investor Profile:
1. Unit Trust Funds:
- Suitable for investors seeking growth, diversification, and medium-term investment
- Risk tolerance: medium to high
2. Government Securities:
- Suitable for investors seeking low-risk, predictable returns
- Risk tolerance: low to moderate
3.Fixed Income Bank Deposits:
- Suitable for investors seeking very low-risk, short-term investments
- Risk tolerance: very low
Unit Trust Funds offer potential for higher returns, but come with medium to high risk. Government Securities provide relatively stable returns with low risk. Fixed Income Bank Deposits offer predictable, low-risk returns, but with lower yields. Investors should consider their risk tolerance, investment horizon, and financial goals when choosing between these options.
Disclaimer:
This comparison is general in nature and not tailored to individual circumstances. Investors should consult with a financial advisor before making investment decisions.