Capital Protected Fund gives poor return

Dear Mr Tan,

I am a NTUC policy holder. I also have investments in some unit trusts.

I recently stumbled on your blog and have been reading your articles. I am very interested in the combined funds. May be it is a bit too late for investment at this age (I have retired).

I need your help on the closed funds. I have the intention to sell as the unit trust (closed fund) is now in the positive and with this money go into combined fund. Presently, the return is about 1% p.a. for the past 4 years and maturing sometime next year. It is a capital protected fund and there is a payout if it crosses certain price. Other than that, there is no mention whether subscriber of the fund will get anything else if the fund is doing well. It is moving very, very slowly. Should I sell now?

For the combined fund, should I start small with $1,000 and every month buys $100 of units or with a lump sum, say $10,000 noting that the funds are not cheap now.

LC

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Dear LC

I am not familiar with the structure of your protected fund. I suggest that you should ask your fund manager to give you an estimate of the likely payout on the maturity date, assuming that the market stays at the current level, and assuming that the investments increase by 5% per annum.

For your investment into the combined fund, I suggest that you invest $1,000 a month over 10 months, to make a total investment of $10,000. This will help to spread out the investments and get an average price for your investments. In the meantime, you can invest the money in the money market fund and transfer it gradually over the next 10 months.

Alternatively, you can put the entire investment in the money markt fund and wait for a market correction to move into the combined fund. I am adopting this approach for my personal investments.

Tan Kin Lian