Unit Trusts Or Fixed Deposits – Which Serves You Best?

What is a unit trust?

A unit trust is a fund comprised of investors’ money managed by fund managers. This fund will then be invested into various assets such as cash or money market instruments, fixed income or bonds, equities and commodities.

What is a fixed deposit?

Fixed deposit accounts are offered by banks to help you earn higher earning rates compared to regular savings accounts. For most fixed deposits, investors must retain their deposits in the account for a pre-determined tenure to enjoy the investment returns.

Unit trusts vs fixed deposits: what you need to know

• Risk: Fixed deposits are a safer form of investment with a steady income stream and guaranteed capital returns. Unit trusts, however, are subject to market risk, which means that your investment is vulnerable to fluctuating market changes. The best way to secure your unit trust investments is to diversify your assets by spreading them across different units. 

• Returns: Unit trust investments are advantageous when you look at the promise of potential returns and quick capital liquidity, which means that it can readily be converted into cash. The higher the risk, the higher your potential returns. Although fixed deposits are an extremely low risk option, the potential returns are nowhere as attractive in comparison.

• Capital Investments: Most unit trusts require an initial amount of S$1,000, providing investors with a basket of stocks – diversification reduces investment risk. Fixed deposits generally require a larger minimum deposit amount in comparison. 

• Accessibility: Unit trusts are more flexible as there are no fixed tenures involved – the recommended holding period ranges between three to five years – but it can be liquidated without penalties when necessary. Fixed deposits can range from one month to about five years and are subject to penalties should you decide to withdraw your deposit before the term ends. 

So which suits you best?

First, look for an investment strategy that suits your short-term and long-term needs.

With unit trusts, diversifying your assets into various unit trust funds lowers your potential risk. It’s best to have some understanding of the facility before committing.

For fixed deposits, look at the term length. Don’t lock away all your money into a long-term FD if you think you’ll need access for emergencies or unforeseen expenses. Instead, invest in fixed deposits across different tenures to ensure you can liquidate in a shorter time frame.

With a plethora of investment options out there, it can be overwhelming. Speak to professional advisers to learn more about the best choices for unit trusts and fixed deposits options before making any commitments.