When you sell stock on the stock exchange, you can transact at unit price you wanted at a specific day. However, when you sell your unit trust, you only know the indicative price at the time of transaction. You will not know the final confirmed price and the actual amount you are getting until after the Investment Manager has executed the redemption (sales) few days later or even months later.
Each unit trust has its own dealing cut-off time, valuation frequency, redemption frequency. In some funds there are even liquidity period before you actually see your cash in your bank account.
Two examples to illustrate:
DBS Absolute Return Fund (Hedge Fund)
Valuation: Last business day of each month
Liquidity: 55 day notice prior to valuation day and payment no later than 40 days after valuation day.
Request to sell this fund was on 16 October 2006. Money only received on 9 February 2007 which was nearly 4 months later.
Schroder Singapore Trust – Class A
Dealing: Daily up to 5 pm
Valuation: 2-day forward pricing
Request to sell this fund was 2 April 2007 (Monday), actual price transacted will be 2 business days later. 2-day forward pricing will mean a world of difference if the stock market is dropping daily hence reducing the Net Asset Value (NAV) of the fund. Fortunately, the STI was improving during this week.
In the first example, if you are in need of cash urgently, then the wait of months will be damaging. In the second example, you will not know the final price you have transacted at the time you gave the order to sell especially during volatile stock market environment.
It is important to pay attention to these details if you are investing in a particular unit trust. Don’t ignore and then try to find out later when you are redeeming the unit trust.
Written on 4/7/2007 10:41 AM
Copyright © 2007, the author known as LKT in Singapore.
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.