CHAPTER 1

UNDERSTANDING UNIT TRUSTS

Basic Features of Unit Trust Collective Investment Schemes in
M’sia
• UTS
• Pension and provident funds
• Collective • Insurance plan
Investment Scheme • Pilgrims’ funds
• Investment-linked Funds

• Ownership of fund - divided into

units

• Returns – distribution & capital

appreciation

• Investment opportunity for small

investor 4
 Unit Trust Structure
(Mode of Operations Governed by the Deed)
Unit Holders
Deed
• Invest & responsible for fees that
earned by UTMC & trustee
• Rights & obligations of UTMC
• Unit Holders
• Reap the rewards of the fund
• Rights & duties of Trustee
Trustee • Rights of Possible
Unitholders Money Pooled Unit Trust Management Companies

• Safeguards UTS • MaximumDistributions

assets fees payablefrom Investors
• Reports to trustee regarding UTS
Administers
investments
• Ensures funds are• Authorised
invested in
Safeguards
accordance with deed & objectives
investment the & distributes UTS
• Promotes
the Assets of
• Trustee
• Supervises • Valuation
the operations
the UTS
of units Operations
• Services the unitof • UTMC
holders
•
• Approves & monitors Outline way
all financial in which changes can the
be UTS
made
• Distributes to
income, calculates unit
transactions price
• Collects all incomesthe deed Possible Capital Gain • Provides repurchase facilities
& Income • Maintains registration of unit holders

• Authorized
investment 5
 Unit Trust Fund Basics Terms
• Ownership of funds are in Units
• Fund Value quoted as Net Asset Value (NAV)
• NAV of Fund = Total Value of Fund in RM
– e.g. NAV of Fund A = RM100 million

• Nav per unit = Value of per unit in Fund in RM

– e.g. Assuming Fund A has 400 million units

= RM 100,000,000
– NAV per unit would be
400,000,000 units
= RM 0.25 per unit 6
Basic Features of
Unit Trust
Basic Features of
Unit Trust
Basic Features of
Unit Trust

Same as Q. 140
Basic Features of
Unit Trust
Benefits of Unit Trust
Diversification
Investment Exposure
Professional Management
Liquidity
Ease of Transactions
Investment Costs
Able to apply Dollar Cost Averaging
11
 Benefits &
Disadvantages of UTS
 Benefits &
Disadvantages of UTS
 Benefits &
Disadvantages of UTS
Method of Investing

Lump Sum

Reinvestment of
Income

Regular Savings

15
Borrowing to Invest
Leveraging & gearing
• Max loan-to-valuation ratio is 67%
• UTC must not directly/ indirectly encourage sales
through loans
• Borrower must be between 18-55

Risk of Borrowing
• Interest rate fluctuation
• Default in repayment of loan
• Premature repayment of Loan
• Margin Call 16
Cooling Off Right
• Within 6 BUSINESS DAYS
• Full refund
• Given to a first time investor EXCEPT:
• a corporation or institution
• a staff of UTMC; and
• UTC

Repurchase of Units
• Unit holder has the right to withdraw from UTS any
time
• Within 10 CALENDAR DAYS
17
Methods of Investing - Lump Sum,
Regular & Loan Financing
Methods of Investing - Lump Sum,
Regular & Loan Financing
Methods of Investing - Lump Sum,
Regular & Loan Financing
Methods of Investing - Lump Sum,
Regular & Loan Financing
Deed & Prospectus
Deed & Prospectus
Deed & Prospectus
Cooling Off Period
TYPES OF UTS
Unlisted/Open-End Funds Listed/Closed-End Funds
1. Units are not quoted on a 1. Units quoted and traded on
stock exchange stock exchange

2. Unit prices are computed 2. Prices determined by

based on the underlying market forces of demand and
net asset value of the fund supply

3. Prices remain unchanged 3. Prices fluctuate throughout

within the same trading day the day and from time to time

4. Size of fund would 4. Size of fund remains

increase with the creation unchanged until the next
of units and decrease with public issue
the cancellation of units

5. Transacted directly with 5. Investors can only sell their

UTMC units through the exchange
26
 Types of UTS –
Listed & Unlisted
 BALANCED REIT
MONEY
ETF
MARKET

FIXED
INCOME SYARIAH

CLASSIFICATION
OF GOVERNMENT-
EQUITY
UNIT TRUST
SPONSORED

28
 EQUITY UTS

Aggressive
Index Fund
Growth Fund

International
Income Fund
Fund

29
 FIXED INCOME UTS

Money Corporate
Market bond
Instruments

Government
Securities
Generally provide regular income with less
emphasis on capital growth

Usually more secure

Usually held as portfolio diversification

30
 Balanced UTS

Fixed
Income
Securities, Equities
Cash &
Property

Exhibit lower volatility than most funds with

more exposure to equity

Equity exposure limited to 60% of total NAV of

fund

Prospect of returns higher than money market

UTS, saving accounts and fixed deposits
31
 MONEY MARKET UTS
Operate in similar way to bank account - unit price normally set
at fixed amount

Invest in low risk money market instruments

Highly liquid & ideal for use as a short term “parking place”

Income distributions to investors paid regularly

32
REAL ESTATE INVESTMENT TRUSTS

Units in listed
Most are REIT can be
listed on bought and
stock
Returns- sold through
rental income exchange stockbrokers
and capital
appreciation
Invest in real
property

33
• Investment objective - to achieve same return
as a particular market index

• Primarily invest in all securities / a

representative sample of the securities that is
included in a selected market index

• Often have low expense ratios

• Bought and sold through a stockbroker, on an

exchange like listed share

34
Classification
of UTS
Classification of
UTS
Classification of
UTS
Classification of
UTS
Classification of
UTS
Classification of
UTS
Classification of
UTS
Classification
of UTS
Classification
of UTS
Classification of
UTS
Fees & Charges

Direct Indirect
Annual
Service Charge Management
Fee
Repurchase
Charge
Annual Trustee
Fee
Switching
Charges

Transfer
Charges
46
 Management Expense Ratio (MER)
• To assess previous year’s cost of holding units
in UTS and compare it to :
– past and prospective returns,
– MER of competitor UTS, and
– costs of other investment opportunities

MER = (Fees + Recovered Expenses) X 100

Average Fund Size

47
Fees and
Charges
Fees and
Charges
Fees and
Charges
Fees and
Charges
Fees and
Charges
 Measuring
Performance
 Unit Pricing -
Forward & Historical
 NAV of Fund
• Total Fund NAV is derived from
= Total Asset Value of Fund - Total Liabilities of Fund

Liabiliti
Assets NAV
es

• Investments at market value • All expenses incur in

• Liquidity (cash available for management of the funds
investment)

• Total Fund NAV is computed on daily basis, based

on business days.
56
 What is Unit Split ?

NAV per unit NAV per unit

RM 0.25 RM 0.20

Total Value = RM 1 (Unchanged)

The division of a single unit in UTS into several
units.
Distribution, Unit
Splits and NAV
Distribution, Unit
Splits and NAV
Distribution, Unit
Splits and NAV
Distribution, Unit
Splits and NAV
Distribution, Unit
Splits and NAV
Distribution, Unit
Splits and NAV
Distribution, Unit
Splits and NAV
 CHAPTER 2

REGULATION OF THE UNIT TRUST

INDUSTRY
 Self Regulatory
Main Regulator
Organization

Old Term: FMUTM

(Federation of Malaysia Unit Trust Managers)

Other Regulators
 Guidelines issued by
FIMM
Guidelines for Registration of IUTA and CUTA for the
Marketing and Distribution of Unit Trusts

Investment Management Standards (IMS)

By Laws – Procedures for disciplinary proceedings

Code of Ethics and Standard of Professional Conduct

 Approved by SC

Independent Custodian of
of UTMC fund
Key
Requirements
of Trustee
Creation &
Account &
Cancellation of
Audit
units

Report to unit
holders and SC
Regulatory Structure :
SC, FIMM & etc
Regulation of the
Trustee
 CHAPTER 3

SERVICING CLIENTS AND MARKETING

UNIT TRUSTS
Purchase of Units
in UTS
 Purchase of Units
Continue from Q. 17-18, Measuring Performance in UTS
Purchase of Units
in UTS
Marketing of
UTS
Marketing of UTS
Marketing of UTS
Marketing of UTS
Annual Report
EPF Transfer
Other Investment Alternatives
Dollar Cost
Averaging
Dollar Cost
Averaging
 Risk & Return of Unit Trust Fund
Potential Return (%)
Hedge Funds*

Equity Funds
Balanced Funds

Fixed Income Funds

Money Market Funds

The higher the potential return, the higher the risk

83
 Risk Investing in UT
• Overseas investments of the fund may be affected
by changes in the political & economic conditions of
Country the country in which the investments are made as
Risk such event may influence the growth and
development of business enterprises and financial
markets.

Interest • Interest rate movements impact bond valuations with

Rate Risk bond prices moving inversely with interest rates.

Specific • Adverse price movements of a particular security

invested by the fund may adversely affect the fund’s
Security NAV and unit price.
Risk
84
Risk Investing in UT
• Non-conformance with regulations and
Risk of Non internal policies and procedures by Manager
Compliance due to situations such as system failures and
oversight may adversely affect the investment
of Unitholders

• In the event of an issuer (bond/PDS) defaults in

payment of interest and principal, the value of
Credit Risk the fund may be adversely affected

• Risk that investment decisions pertaining to asset

Manager’s allocation and stock selection undertaken by the
Manager may adversely impact the performance of
Risk the fund if the investment strategy adopted is not in
tandem with market movements. 85
Risk Investing in UT
• Where a percentage of the value of a fund is
Currency invested in foreign currency or assets
Risk denominated in foreign currency, the fund may
be exposed to currency fluctuation risks.

• The purchase of equities represents a risk since

Market the prices of stocks underlying the NAV of the
fund fluctuate in response to various factors such
Risk as individual companies as well as general market
or economic conditions.

• The ability to dispose a security at near its fair

Liquidity value depending on the volume traded on the
Risk market.
86
Risk Of Investing
in UTS
Risk Of Investing
in UTS
Risk Of Investing
in UTS
 INCOME
DISTRIBUTION
The amount of distribution only come from
realised capital gain and incomes:
Dividend income received

Interest income received

Other income received

Realised capital gains from the sale of investment

After deducting expenses and taxation

 Income
Distributions
 Income
Distributions
 Income
Distributions
 CHAPTER 4

INDUSTRY CODE OF ETHICS AND

STANDARDS OF PROFESSIONAL
CONDUCT
 Code of Ethics

• Honesty, Dignity and Integrity

UTC
• Fair Dealing
• Good Faith
• Competence
• Confidentiality
• Professionalism
• Acting with Due Care, Skill and Diligence
• Prompt, Efficient and Continuous Service
96
 Standards of
Professional Conduct
UTC
• Compliance with laws
• Use of authorization card
• Appropriate designation or title
• Marketing and distribution with prospectus
• Adequate explanation
• Advertisements and promotional materials
• Appointment of qualified persons
• Duty to supervise and monitor
• Keeping abreast with the industry
• Disciplinary proceedings 97
 Disciplinary Proceedings

• Complaint normally handled by UTMC or IUTA,

but may be referred to FIMM for disciplinary
proceedings

• Complaints to FIMM must be in writing.

98
 FIMM
Disciplinary
Proceedings
SC Guidelines on Marketing
& Distribution of UTS
SC Guidelines on Marketing
& Distribution of UTS
SC Guidelines on Marketing
& Distribution of UTS
 CHAPTER 5

PERSONAL FINANCIAL PLANNING

Client Types
The effect of charges on investment returns:
Assume an investor invested RM100,000 in a UTS that has
initial entry cost of 7% with an MER of 2% for 5 years and
12% of return every year.
“Working Money” : RM100K/(1+7%) = RM93,457.94
MER : 2% p.a.
Rate of Return : 12% p.a.
Effective Rate of Return = 12% - 2% = 10%
Compounding Factor For Lump Sum Investment :-
= (1+i)n
where i = rate of return
n = no. of years

Compounding Factor = ( 1+10%)5

= (1+0.1)5
= 1.6105
Future Value = RM93,457.94 x 1.6105
= RM150,514.01 106
 THE IMPACT OF INFLATION ON INVESTMENT
OBJECTIVES
A house costs RM150,000 today, how much will it costs for, say,
10 years’ time with the inflation rate of 4%, 4.8% or 5%?
Compounding factor for a sum of money
= ( 1+i)n
Where i = Inflation rate
n = no. of years
Inflation rate
End of Year 4% 4.8% 5%
RM RM RM
10 222,037 239,720 244,334

107
 Effect on Inflation, Tax &
Costs on Investment Return
 Effect on Inflation, Tax &
Costs on Investment Return
 Effect on Inflation, Tax &
Costs on Investment Return
 Effect on Inflation, Tax &
Costs on Investment Return
Rule of 72
72 Years to double given
=
Given interest rate sum of money

72 Years to halve a real value

=
Given inflation rate of a given sum of money

112
Rules Of 72
Rules Of 72
Rules Of 72

Same as Q. 3
Rules Of 72
Effect of Charges to
Investment Return
Effect of Charges to
Investment Return
Effect of Charges to
Investment Return
Effect of Charges to
Investment Return
Effect of Charges to
Investment Return
 CHAPTER 6

OPERATIONS OF SYARIAH-BASED UTS

Catered for Syariah concerned investors

Invest in a portfolio of halal companies,

Islamic Debt Securities & bonds or other
securities in accordance of Syariah principle

Returns will also avoid the incidence of riba or

usury interest
 Go through the notes,
readings & exercises
given

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