I BELIEVE I have a duty to respond to the article entitled ''Costs show another side to unit trust savings schemes'', not just because I work for GT Management (Asia), but, more importantly, to clarify a few of the misconceptions with regard to monthly savings using unit trusts.
The figures that were used for the GT Asia Fund, with a return of 433 per cent in the period from 1984 to 1993, represent an increase in per cent of a lump sum investment made in 1984, ie a $100 investment made 10 years ago, would be worth $533 after 10 years.
This equates to an annualised compound growth rate of 18.22 per cent, instead of the misunderstood concept of an annualised return of 43.3 per cent quoted by Mr O'Toole.
Over the same period, by investing say $100 into a regular monthly purchase plan (not through any insurance scheme) the total savings amount of $12,000 would be worth $34,863.89. This would work out to be 20.52 per cent return per annum.
In other words, over the same period, an investor has to save $100 per month into a bank account that pays an interest rate of 20.52 per cent per year to receive the same amount. The rate of return with this method is higher than the previous example because different amounts and time elements are being used.
The first one is a lump sum investment for 10 years, so the investment will have ridden the ups and downs of the markets. The second example utilises ''dollar cost averaging'', ie buying more units when markets are low, and less when the markets are high.