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A unit trust is a collective
investment vehicle, which pools investors’ capital
into a fund managed by professional fund managers. The
fund will be invested in a diversified portfolio of
equities, fixed income securities and other assets as
permitted by the deed as well as the SC Guidelines on
Unit Trust Funds.
The unit trust forms a relationship between the unit
holders, the trustee as an independent body and the
management company. The relationship is governed by
a legally binding deed registered with the SC.
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UNIT
TRUST CONCEPT |
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The deed spells out
in detail the manner in which the fund is to be administered,
the valuation and pricing of units, the keeping of proper
accounts and records, the collection and distribution
of income, the rights of unit holders, the duties and
responsibilities of the management company and trustee
with regard to the operations of the fund, and the protection
of unit holders’ interest.
The management company is obliged under the deed, Securities
Commission Act 1993 and Guidelines on Unit Trust Funds
to administer the fund in an efficient and proper manner
that will ensure high standards of integrity and fair
dealing in managing the fund in the exclusive interest
of unit holders, to exercise due care, skill and diligence
as well as effectively employ the resources and procedures
necessary for the proper performance of the fund.
The trustee acts as the custodian for all the assets
of the fund. The trustee, therefore, must act to ensure
that the management company adheres strictly to the
provisions of the deed; particularly with regard to
the creation and cancellation of units, the exercise
of investments powers of the fund, collection and distribution
of income, proper record keeping of administrative,
investment and unit holders’ transactions, and
in upholding unit holders’ interests. |
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The
Regulatory Framework for Unit Trust Fund in Malaysia |
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In order to safeguard
the interest of investors, the unit trust industry in
Malaysia is governed and regulated under the Securities
Commission Act 1993, the SC Guidelines on Unit Trust Funds
and relevant laws. The statutory and regulatory requirements
as well as the deed regulate the operations of the unit
trust fund, the rights of the investors and the responsibilities
and duties of the management company and the trustee.
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Professional Fund
Management |
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In today’s highly
complex investment world, it is increasingly difficult
and expensive for investors to have access to specialised
research and market information. The investment of the
unit trust fund is managed by professional fund managers
who perform in-depth economic and corporate research and
identify opportunistic investments. They have access to
various economic and corporate research materials. |
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Diversification Opportunities |
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Investment in unit trust funds provides
an opportunity to spread investment portfolio of a diversified
type of stocks and derivatives even with a small capital. |
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Ease of Transactions |
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This provides an investor with a simpler,
more convenient and hassle-free method of investing in
securities as compared to holding a portfolio of securities
himself. |
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Minimization of risks |
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The diversification of
portfolio spreads the investors’ risk exposure,
over a broad portfolio of stocks and derivatives, which
offer different type of risks. |
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Liquidity |
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Unit holders may redeem
all or part of their units on any Business Day and have
their proceeds delivered within ten (10) days.
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Risks
of Investing in Unit Trust Fund |
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General Risks |
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Fund Management Risk |
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Poor management of a fund
will jeopardise the fund’s performance that may
result in the loss of capital invested by the unit holders. |
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Inflation/Purchasing Power Risk |
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This refers to the decline in the purchasing
power of the same amount of money over time. Therefore,
any return lower than the inflation rate will reduce the
value of the investment. |
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Loan Financing Risk |
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When an investor borrows
money to purchase units in a fund, there is a risk of
capital loss. The investor may be forced to provide additional
fund to top up on the loan margins should the market go
down or may suffer from the higher cost of financing if
the interest rate is on an uptrend. Thus, the investors’
ability to pay the loan installments may be jeopardised
under these circumstances. |
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Risk of Non Compliance
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The risk that the
manager and others associated with the unit trust fund
may not follow the rules set out in the unit trust fund’s
deed and internal policies, or the law that governs the
unit trust scheme, or will act fraudulently or dishonestly.
Non-compliance may expose the fund to higher risks that
may result in financial and/or non financial losses. However
this risk is greatly reduced via proper establishment
of the compliance and internal control policies. |
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Investment Risks |
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Stock Market Risk |
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The unit trust fund
performance is subject to the volatility of the stock
market, influenced by the changes in the economic and
political climate, interest rate, international stock
market performance and regulatory policies. The movement
in the underlying investment portfolio will affect the
price of units. |
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Stock Specific Risk |
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It refers to an inherent risk of a particular
stock of the unit trust fund. Any major fluctuation of
the stock price may affect the NAV of the fund and thus,
influence the price of units. This risk can be minimised
through portfolio diversification. |
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Liquidity Risk
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The risk refers to
the ease of converting securities with cash at or near
its fair value. The position normally depends on the volume
traded on the market. The risk is minimized through extensive
research on stock selection and diversification.
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Interest Rate Risk |
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Movements in interest rate may affect
particularly value of fixed income securities, bonds and
return on cash. Interest rate is also a general economic
indicator of the country, which may affect the value of
investment even if the fund does not invest in interest
bearing instruments. Interest rate risk is managed through
effective allocation of the fund. |
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Credit/Default Risk |
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Credit risk
refers to the ability of an issuer to make timely payments
of interest/profit, principal and proceeds from realization
of investments. The risk is mitigated through a prudent
research process and close monitoring the issuer’s
credit profile. |
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Types of Investment |
Risk
Level |
Expected
Return Level |
| 1 |
FINANCIAL DARIVATIVE PRODUCTS |
HIGH |
HIGH |
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PROPERTY |
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| 3 |
SHARES |
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| 4 |
UNIT TRUST |
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| 5 |
FIXED DEPOSIT |
V |
V |
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CASH |
LOW |
LOW |
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Investment in
unit trust fund offers different levels of volatility
and risk. The higher the volatility, the greater will
be the risk. Under normal circumstances, higher returns
are correlated with higher risks and vice-versa.
Investors of unit trust funds who have
high risk tolerance may have aggressive investment outlook
and favouring high capital growth. Investors with moderate
risk tolerance may favour investment with potential
of higher return with acceptable level of risk. Conservative
investors normally prefer investment that offers stability
in term of both principal and income but recognize the
risk of investing in the fund.
Investing in unit trust funds provides
investors with avenues to achieve their medium to long
term financial goal.
It is important to note that
the performance of a fund is not guaranteed. Investors
are advised to examine the risk profile of the fund
before making any investment decision.
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Management Fee |
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The management company may only be remunerated
for its services by way of an annual management fee charged
to the fund. The fee however may only be charged to the
fund if permitted by the deed of the fund. In this regard,
the deed should stipulate the maximum rate of the annual
management fee chargeable to the fund. |
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Trustee’s Fee |
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The trustee may only be remunerated
for its services by way of an annual trustee fee charged
to the fund. The fee however may only be charged to
the fund if permitted by the deed of the fund. In this
regard, the deed should stipulate the maximum rate of
the annual trustee fee and annual custodian fee (if
any) chargeable to the fund. |
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Sales Charge |
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An investor is charged with an entry
fee which is calculated based on the fund’s NAV
per unit. The sales charge is incorporated in the fund’s
selling price per unit. |
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Repurchase/Redemption Fee |
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An investor may be charged
an exit fee on repurchase/redemption of his investment.
Normally, an exit fee is charged for redemption of investment
in bond fund before its maturity. |
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Switching, Transfer and Transmission
Fee |
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A fee may be charged on a unit holder’s
request to switch, transfer or transmission of units. |
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Management Expenses
of the Fund and Management Expense Ratio (MER) |
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Operating a fund
involves a variety of expenses such as the management
fees, trustee fee, audit fee, administrative expenses
(printing of annual reports, distribution warrants,
and postage) and other service charges properly incurred
in the management of the fund as permitted under the
deed. These costs are already factored or reflected
in the unit’s prices.
The MER represents the fees and
expenses incurred in the management of the fund, which
are deducted from the fund’s income, and expressed
as a percentage of the average NAV of that particular
fund, calculated annually as at the financial year end.
The formula is:-
Fees
+ Recovered Expenses Incurred By The Fund For The Year
x 100
Average
NAV of the Fund Calculated Daily
As an illustration,
assuming the fee and recovered expenses incurred by
the fund amounted to RM42,640 and the average NAV of
the fund calculated daily was RM2,648,909, then the
MER is calculated as follows:
RM42,640
x 100 =
1.61%
RM2,648,909
The fund carries an expense of RM1.61
for every RM100 of the average NAV of the fund during
that financial year. The MER allows direct comparisons
of cost effectiveness between the funds. The higher
the ratio, the more expenses are incurred by the fund
and vice versa. As a unit holder, you pay the costs
of operating the fund in addition to the initial entry
fee.
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To evaluate the
performance of unit trust funds, an investor may study
total returns generated by the Fund i.e. the percentage
change in a fund’s adjusted price over the period.
(Adjusted price is derived by adjusting the cash distribution
and unit splits).
To obtain an annual rate of return,
an annualized return is used by averaging total returns
over the number of years under review. An investor can
refer to the Manager’s Annual Report for the percentage
returns.
In order to measure the performance
of the funds, acceptable performance benchmark such
as KLCI and FBMEmas may be adopted as a comparison
tool. Below is a brief description of a few acceptable
performance benchmarks.
KLCI
is a capitalization-weighted index of 100 high volume
companies listed on the Bursa Malaysia. The index calculation
is weighted by market capitalization of those companies.
FBMEmas
is a weighted average index with its components made
up of all the Main Board companies listed on the BURSA
MALAYSIA as Syariah approved securities by the Syariah
Advisory Council (SAC) of the SC.
One Year
Fixed Deposit Rate represents performance benchmark
relating to interest bearing instruments. The rates
quoted by Maybank are adopted in comparing the returns.
3-month Islamic Interbank Rate is the daily weighted average rate of the Mudharabah interbank invesment, quoted under '3 months', at the Islamic Interbank Money Market of Bank Negara Malaysia. This rate represents performance benchmark relating to Islamic money market funds.
Unit holders can obtain the latest
information on the indexes, which are published daily
by local newspapers. The change in the total NAV, Total
Returns and comparison with Benchmark is depicted in
various financial periodicals and some leading newspapers
in form of a table prepared by various independent fund
rating companies.
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