3 Parties 1. Unit Holder - 2. UTMC -> Unit Trust Management Company 3. Trustee

1. Full Time CEO 2. Approved by SC 3. Capital Market Services (CMSA) licensed 4. Independent Directors (1/3 of board or minimum 2) 5. Registered with SSM

Basics Flashcards by Esmeralda De Silva

Unit Trust Scheme

Form of collective investment scheme (CIS) that

allows investors with similar investment objectives to pool their savings which are then

invested in a portfolio of securities or other assets

managed by investment professionals

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Unit Trust History

1959 -> Malayan Unit Trust Limited

1993 -> 1st Syariah Compliance Fund -> Arab Malaysian Unit Trust Bhd

2000-> 1st Islamic Bond Fund

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Green Prospectus

Islamic Fund

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Red Prospectus

Conventional Fund

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Why should we read a master prospectus

to make informed decision

mandatory to be given to customer

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Which is the best part of the prospectus to go through with investors?

Key Data Sections

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Unit Trust Structure

3 Parties

Unit Holder -
UTMC -> Unit Trust Management Company
Trustee

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Unit Holder

Invests in scheme (pool of money from investors)

Responsible fees

Receives possible distribution

Capital appreciation

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UTMC

Unit Trust Management Company

manages Unit Trust Schemes (agent authorizes and invests money; under equity, bonds and money market)

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Trustee

Safeguards the assets of the UTC

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What will the investors received after they have invested in UTS

A statement for confirmation on

Investment amount
No of units acquired/issued
NAV/U on the date of allocation (price per unit
Service charge

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Cooling Off Rights (Investors Rights)

A safeguard to prevent

Purchasing units without fully understanding Unit Trust Scheme (UTS)

Being misled by Unit Trust Consultants

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Who is given cooling off rights

First Time Investor Only

Exception (corporation, staff of UTMC, UTC )-> they should already know

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Investors Rights

Receives UTS annual reports and interim reports

Receive distribution from UTS

Call for meeting

Do switching (from Fund A to Fund B) -> switching charges

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What is the refund period should a Unit Holder exercise Cooling Off Rights

Within 6 Business Days -> Full refund include mgmt fees

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Redemption (Switching Funds)

Redemption from current fund could be partial or full

Redemption is from one fund to another fund or many funds

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Repurchase of Units

Unit holder has the right to withdraw/sell/dispose from Unit Trust Scheme

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Characteristics of Unit Trust Management Company

Report to trustee regarding UTS investments
Promotes & distributes UTS (via UTC)
Service the unit holders
Distributes income, calculates unit price
Provide repurchase facilities
Maintain a register (database -> basic info) of unit holders

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Annual Management Fee

Calculated on the Gross Net Asset Value (NAV) of UTS

Cover the cost of managing UTS incurred by the manager

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Requirements of UTMC

Full Time CEO
Approved by SC
Capital Market Services (CMSA) licensed
Independent Directors (1/3 of board or minimum 2)
Registered with SSM

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Characteristics of Trustee

Safeguards UTS assets
Body to oversee investment by UTMC
Ensures funds are invested in accordance with deed and objectives
Approves and monitors all financial transactions and collects all income
The assets and
investments of unit trust schemes are held under Trustee’s name
Report to regulatory body for non-compliance on investment

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Requirements of Trustee

Registered & approved by SC
Custodian of fund
Account & Audit
Report to unit holders and SC
Creation & cancellation of units
Independent of UTMC & UTS

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Deed

Rights of all 3 parties

Rights of Unit Holders
Rights & obligations UTMC
Rights & duties of Trustee

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Collective Investment Schemes in Malaysia

UTS
Insurance/ Investment-linked Policy
Pilgrims fund (Tabung Haji)
Exchange Traded Fund (ETF)
Real Estate Investment Trust (REIT)
Private Retirement Scheme (PRS)

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Ownership of funds

Divided into units

Returns

Distribution & capital appreciation

Equity Fund Min

1000

Cash Management Fund Min

Forward pricing

NAV of the Fund would be known at the end of the business after the relevant markets are closed

Net Asset Value (NAV)

Fund value (price)

Assets

Investments at market value | Liquidity

Liabilities

All expenses incurred in management of the funds

NAV Formula

Assets - Liabilities = NAV

NAV/U

Net Asset Value per unit

NAV/U Formula

Total NAV / No of Units

Initial Service Charge

First cost that an investor has to pay

Working Money

Investment amount - service charge

Working Money Formula

Capital / (1+ Service Charge)

Service Charge Formula

Investment amount - Working Money

How to minimize impact of the initial service charge?

Adhere to long-term buy & hold strategy, making sure that the unit purchases match long term investment objectives

Distibution of Fund

Realized Capital Gain + Income Received (dividend, interest, other income) -> after deducting taxes

Fund Objective

Capital Growth Capital Growth & Income Income

Capital Growth - Fund Types

Growth of capital Normally aggressive or moderate equity funds

Capital Growth & Income - Fund Types

normally moderate equity, funds or balanced funds

Income - Fund types

Normally bond funds & money market funds

Benefits of Unit Trust

Diversification Professional Management Investment Exposure Investment Cost Ease of Transaction Liquidity Able to Apply Dollar Cost Averaging

Benefits of Unit Trust: Diversification

Spreading risk over a broad portfolio of asset classess Invest in different countries/ region, sectors, companies

Benefits of Unit Trust: Professional Management

Managed by professional fund managers with expertise

Benefits of Unit Trust: Investment Exposure

Exposed to other markets which is out of reach of investors with small capital or without the right resources and experience Access to instruments like Malaysian Government Securities (bonds) which needs high capital outlay Institutional investors often receive preferential allocations of IPO

Period for liquidating/ redemption

10 calendar days

Benefits of Unit Trust: Dollar Cost Averaging

Fixed investment amount is made on a regular basis Helps to lower the average cost per unit in the long run

Disadvantanges

Opportunity Cost Loss of Control Fees & Charges Risk

Disadvantages: Opportunity Cost

Investor loses the opportunity to invest in another alternative investment

Disadvantages: Loss of Control

Investor cant decide on where the found would invest, fund managers decide

Disadvantages: Fess & Charges

Short term investors may not have recovered the fees and charges involved

Disadvantages: Risk

Risk in UTS, investor must be aware

Methods of Investing

Cash or EPF Lump sum Regular Savings Reinvestment of Income

EPF Investment

Account 1 = 70% Account 2 = 30% Investment funds from Account 1 *from 1st Jan 2007 Account 2 + Account 3

EPF Investment Amount Formula

(Account 1 - Basic Savings) * 30%

Loan financing

Total investment ``` Maximum Loan (67%) Balance 33% (own money) ```

Loan financing leveraging

Borrowing funds to invest to gain maximum exposure, expecting that the rate of return on investment will exceed the borrowing cost, thus giving rise to additional profit

Risk of Investment via Loan Financing

1. interest rate fluctuation 2. default in repayment of loan 3. premature repayment of loan 4. margin call

Interest Rate Fluctuation

Variable interest rates Total cost of financing is unpredictable => profits unpredictable

Default in Repayment of Loan

Lender is entitled to liquidate the investment Units may be sold by lender at any time without borrowers consent, short fall paid by investor Affect credit worthiness of the borrower

Premature repayment of loan

depending on loan contract, borrower may have to pay penalty for early repayment penalty may be based on percentage of the outstanding balance or equal to months worth of interest

Margin call

Amount an investor might have to pay his/her financier if the credit exposure of unit trust loan falls beneath a certain level