Among the various types of investment options available today, Unit Trusts and Exchange-Traded Funds (ETFs) have gained significant popularity in Malaysia due to their diverse benefits and potential returns, but how do you know which one is “better” for you?


Our take? Both offer distinct advantages and cater to different investor preferences. Read on to understand the differences so you can make an informed investment decision. 



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What are Unit Trusts and ETFs?

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What are Unit Trusts?



We've previously written an in-depth article about Unit Trusts, but in short, it is a collective investment scheme managed by a professional fund manager.


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What are ETFs?



An Exchange-Traded Fund (ETF) is also a type of investment fund that pools money from multiple investors to invest in a diversified portfolio of assets. ETFs are traded on stock exchanges, just like individual stocks, and their prices fluctuate throughout the trading day. 


Unlike Unit Trusts, which have a Net Asset Value (NAV) calculated at the end of each trading day, ETFs provide real-time pricing as they can be bought and sold throughout market hours.

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What are the differences between Unit Trusts and ETFs?

There is a wide range of Unit Trust options catering to different risk appetites and investment objectives. 


The main types of Unit Trusts available in Malaysia include:


Unit Trust ETFs
Fund Management and Investment Structure

Typically actively handled by a professional fund manager 

Come in both passive and active management styles

Liquidity and Trading
  • Buying and selling are usually done through the fund management company or authorised agents
  • Redemption process might take 1-2 weeks to complete depending on the fund structure
  • Price is determined based on the NAV at the end of the trading day
  • Offer intra-day trading flexibility, meaning they can be bought or sold on the stock exchange throughout the trading day at market prices
  • Provide investors with the ability to react quickly to market movements and adjust their positions as needed
Risk Profile and Performance

Varies depending on the fund's investment strategy and the assets it holds 

Performance is closely tied to the underlying index or assets they track, providing a more predictable investment outcome

Flexibility and Accessibility
  • Accessible to retail investors, with initial investment being as low as RM50 and the ability to start investing online with Hong Leong Bank Malaysia
  • Suitable if youre looking for professional management and guidance in your investment journey
  • While ETFs have relatively low expense ratios, BURSA-listed ETFs that require a minimum purchase of 100 units may incur a higher initial investment compared to Unit Trusts
  • Suitable if youre seeking both diversification and trading flexibility through a single investment vehicle
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What are their pros and cons?



Unit Trust ETFs
  • Diversification: Investments are spread across various assets, reducing overall risk
  • Expert management: Professional fund managers make informed investment decisions on your behalf
  • Accessibility: Low initial investment requirements
  • Diversification: Allow you to gain access to multiple stocks across various industries in a single packaged security
  • Intra-day trading: Offer real-time trading flexibility, allowing you to react to market movements promptly
  • Transparency: You ll have a clear understanding of the underlying assets in the ETF portfolio
  • Higher fees: Some actively managed Unit Trusts may have higher management fees compared to passive ETFs
  • Limited trading flexibility: Pricing and redemption process is usually conducted at the end of the trading day
  • Trading dynamics: Quick changes in demand can lead to rapid price movements, causing the ETF price to momentarily deviate from its NAV
  • Reduced liquidity for some ETFs: While ETFs generally offer high liquidity, some ETFs, particularly those with lower trading volumes, can experience reduced liquidity
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How do I know what's right for me?



When deciding between Unit Trusts and ETFs, you should consider the following factors: 


  • Investment goals and time horizon
  • Risk tolerance
  • Liquidity needs
  • Portfolio diversification
  • Total costs (including management fees and transaction costs)
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Unit Trusts are well-suited for novice investors who prefer a hands-off approach, seeking professional management and guidance. If you are just starting your investment journey, the lower initial capital makes Unit Trust a good place to start. On the other hand, ETFs are particularly favoured by those who value real-time trading and intraday liquidity.




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What's the investment outlook for each option? 

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The investment outlook for both Unit Trusts and ETFs largely depends on market conditions and the underlying assets they hold.


Actively managed Unit Trusts may perform well in bullish markets if the fund manager makes astute investment decisions.


ETFs allow investors to choose between strategies that either closely follow market benchmarks or rely on the expertise of fund managers to potentially outperform those benchmarks in the face of both bullish and bearish market scenarios.





This article is part of Hong Leong Bank's educational series, called 'Fresh Take'. Here, we seek to present you a fresh, unbiased perspective of all matters financial. We'll be uploading more educational content moving forward, so do watch out for the next piece.


In a world that's awash with information that may be either true, false or anywhere in between, Fresh Take aims to cut through the clutter, and help you on your journeyas an investor who's seeking to build a strong financial future.


Please reach out if you need to know more or need personalised help.







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