What You See Is What You Get? III

As you notice, the difference of BP-BP and ROI decreases when the investment period is longer. From the table, you will shock to notice that you actually incur loss of 5.28% if you cash out after a year of investment. That means if you invest $ 10,000 at the beginning and cash out after a year, you only manage to get back $ 9,472!!

How about the return for Certificate of Deposit (CD) or known as Fixed Deposit (FD) in some countries? Assuming CD/FD could give you 4% return per annum, the return over 5 years period would be:

Year 4% return per annum ROI (%)
0 1 0
1 1.04 4
2 1.0816 8.16
3 1.1249 12.49
4 1.1699 16.99
5 1.2167 21.67



When you compare ROI of Fund KSA and CD/FD, you will notice that ROI of Fund KSA only outpaces CD/FD after 4th year!! Amazing, isn’t it? When you pay hoping for get the better return as compared to “risk-free” CD/FD investment, the outcome is shocking. That is no wonder, the promoters always ask you to invest for long term – the longer the better. We do agree that investment should always for long term (more than 7 years). But, this only applies to the investment that creates value to its investors. If you choose a lousy investment, the longer you hold, the worse you get. Time is unemotional, it would not sympathize you because you choose a lousy investment. In fact, time would punish you if you choose a lousy investment. Time only reward to those who choose a good investment, this is the core of the value investment.

Next time, when the promoters of Mutual Fund (Unit Trust) try to persuade you to purchase the fund and show you how good the return, you should ask them one question: the return is on whose perspective, Fund or investor, that’s you who pull out the money to feed them.

What You See Is What You Get? II

When mutual fund (unit trust) shows its performance, it is in Bid-to-Bid performance. For example, when it shows 10% return per annum, it indicates 10% return per annum of its Bid Price, ie: Bid Price on 2nd January 2007 is $ 1.10 as compared to Bid Price on 2nd January 2006 of $1. Bear in mind that return on Bid-to-Bid is NOT Return On Investment (ROI) of the unit holders. Let’s consider 10% Compounded Annual Growth Rate (CAGR) where Fund KSA managed to achieve for 5 years, what will the investors get if he decide to cash out at the end of 5years:

Year OP ($) BP ($) BP-BP (%) ROI (%) Diff (%)
0 1.0000 0.935 0 0 0
1 1.0835 1.0131 8.35 -5.28 NA
2 1.1740 1.0977 17.38 2.63 561.09
3 1.2720 1.1893 27.20 11.20 142.83
4 1.3782 1.2886 37.82 20.49 84.61
5 1.4933 1.3962 49.33 30.55 61.48



John invested $ 10,000 at the beginning of 5 years period. He does not cash out until the end of the period and at the same time, he reinvested all dividends. After 5 years period, Fund KSA announces that it achieves 49.33% return (that is in term of Bid-to-Bid). When John sold all his units, he found out that he only manage to get $ 13,055 (1.3962 * 9,350 units) instead of $ 14,933. His real Return On Investment (ROI) in term of investor’s perspective is 30.55% instead of 49.33%, which is 61.48% difference. You might ask where is the money gone? Remember, there is always costs involved to feed the interested parties, ie: 6.5% Sales Load and 1.5% Annual Management Fee.

What You See Is What You Get? I

Whenever someone makes an investment, being it in equities, mutual fund (unit trust), real estate and so forth, his objective is to maximize his Return On Investment (ROI). In Mutual Fund, a conventional belief of its return is around 12% per annum. An outcome of the investment return will varied depends on different strategies employed by the investors. Bear in mind that in mutual fund investment, there are 2 typical charges, ie: Sales Load which hover around 5 to 6.5% and Annual Management Fee at 1.5%. Whenever we look at the table of the mutual fund, there would be 3 columns, which are Offer Price (OP), Bid Price (BP) and Net Asset Value (NAV). The difference between OP and BP constitute Sales Load. To make a picture clearer, let’s show you an example.

John invested $ 10,000 in Fund KSA on 2nd January 2006 at OP of $1. With this, he will have 9,350 units of the fund (Note: 6.5% Sales Load). After a year, Fund KSA OP is at $ 1.20. At a glance, it shows a return of 20% per annum. Quite impressive with this return rate. If he sold all of his 9,350 units, he will get $ 10,333 (9,350 * $ 1.10517). Instead of the 20% return, he only manages to get the return rate of 3.33% of his original investment. Playing magic, huh? Sometimes, what you see is NOT what you get….