A unit trust investment follows these general steps Money you invest is pooled together with other investors' into one fund..pdf

A unit trust is a type of mutual fund where money from many investors (called “unit holders”), is managed by a fund manager to achieve a specific return. This fund manager then creates a portfolio of investments and assets.

With a unit trust, the fund manager invests in bonds or shares of businesses on the stock market. The fund is then split into units, which is what you buy when you invest in a unit fund.

Unit trusts are one of the most popular forms of investment funds. They are generally used by investors who want to buy shares and other assets across a mixed portfolio but have limited time or expertise to manage such investments.

The value of investments or income from a unit trust may go down as well as up, so you could come out with less money than you put in.

How does a unit trust work?
A unit trust investment follows these general steps:

Money you invest is pooled together with other investors’ into one fund.
The fund manager invests this money in different asset classes – to spread and reduce the risk.
Then the total fund is divided into equal units, which are what investors buy.
You hold this unit(s) and hope to make money as the value of its assets rise in value over time.
Exit the fund by selling your units at the bid price – to profit this needs to be higher than the offer price you initially paid for the unit(s).

2. •Unit Trust is a form of collective / indirect
investment that allows investors with similar
investment objectives to pool their funds to
be invested in a portfolio of securities or
other assets.
•The price of a unit trust is Net Asset Value
(NAV)

3. Money is pooled from many investors
A professional fund manager then invests the pooled
funds in a portfolio
•Unit holders do not own the securities in the portfolio directly.
Ownership of the fund is divided into units of entitlement. As
the fund increases or decreases in value, the value of each
unit increases or decreases accordingly.
The return on investment of unit holders is usually in the form of
income distribution (dividends and interest) and capital
appreciation, derived from the pool of assets supporting the unit
trust fund.
Each unit earns an equal return, determined by the level of
distribution and/or capital appreciation in any one period.

4. •The investor, is a unit holder who
holds a certain number of units.
•The Unit Trust Management Company
(UTMC), is responsible for the day-to-
day running of the trust and for
investing the funds.
•The trustee is the third party, and their
role is to monitor the manager's
performance against the trust's deed.
–The deed outlines the objectives of,
and vital information about the trust.
The assets of the trust are held in the
name of the trustee; they are held "in
trust" for the unit holders.
SEP 11’
Trust
deed

5. SEP 11’
Trust
deed
•i

6. •Unit trusts are very cheap. The unit cost is low. Affordability:
•Rather than concentrating an investment portfolio of one or two investments
or shares, a portfolio of market securities can be held. Investment into unit
trusts means diversification of risk: "not putting all of the eggs in one basket."
Diversification:
•Most investors prefer their investment to be liquid. That is, they can
easily buy and sell without difficulties. Unit trusts provide this benefit,
easily bought and sold.
Liquidity:
•The people entrusted to manage unit trusts are approved professionals. Their
training and background ensures that decision making is structured and
according to sound investment principles.
Professional
Fund
Management:
APR 09’, 10’,
SEP11’
APR 2009:
b) As a financial planner, how would you convince your prospects to
invest in unit trust?(5 marks)

7. •For the individual investor, it is sometimes difficult to gain exposure
to a particular asset class due to the lack of funds. With unit trust
investments, it is possible to diversify your money around to many
asset classes at the same time, so that the investor can gain the
investment exposure he requires.
Investment
Exposure:
•When making direct investments in the Bursa Malaysia, the investor faces costs and
charges that are much higher. With unit trust the costs are less. Because fund managers
invest in larger amounts, they are able to get access to wholesale yields which are
impossible for the individual investor to obtain.
•For instance, most individual investors cannot have direct access to the Malaysian
Government Security market because the amount of each transaction could run into
millions of Ringgit.
Wholesale
Investment
Costs &
Access to
Other Asset
Classes:
•Unit Trust in Malaysia is regulated by the Securities Commission.
•The sole purpose of such regulations is to protect the interest of the investing public.
Regulations provide investors with a level of comfort that they are investing in a safe
investment mechanism.
The
Comfort of
Regulation:

8. DISADVANTAGES OF INVESTING IN UNIT TRUST
•Since the Unit Trust scheme is managed by the UTMC, the investors has no power
to decide where to invest their money.
Loss of Control
•Performance of the fund depends on the experience, expertise, knowledge and investment
techniques of the fund manager. Poor management of a fund can cause considerable losses to the
fund, which in turn may affect the capital invested.
Management Risk
•The various securities that are purchased by a fund may encounter liquidity risk. Liquidity risk relates
to the fund’s ability to quickly and easily trade at a reasonable price, in and out of positions.
•Should a fund comprise a security that has become temporarily or permanently illiquid or difficult to
sell, the fund manager may need to sell the security at a discount to its fair value, which eventually
affects the fund’s value.
Liquidity Risk
•Apart from the annual charges, exit fee and the initial service charge, other hidden
charges may incur in buying and selling the units.
Hidden Charges
•Investing in unit trust reduces opportunity to invest elsewhere.
Opportunity cost

9. •Unit Trust schemes are often constructed to
suit an investor’s investment objectives
(what he/she wants to achieve).
OCT
10’
Over the years, the unit trust industry in Malaysia has recorded significant
growth. Describe the characteristics of five (5) types of unit trust funds available
in Malaysia. Suggest the groups of investors which are suitable to invest in each
type of funds you have discussed.(10 marks)

10. •An equity unit trust is the most common type. The
major portion of its assets are generally held in
common and preferred stocks.
•Equity unit trust funds provide investors with
exposure to the companies listed on Bursa
Malaysia. The performance of the units is therefore
linked to the performance of Bursa Malaysia. A
rising market will normally give rise to an increase
in the value of the unit and vice-versa.
•There is a wide array of equity unit trusts, available
in the market, ranging from funds with higher risk,
higher returns to funds with lower risk, lower
returns.

11. –These funds invest mainly in Malaysian
Government Securities, corporate bonds, and
money market instruments.
–The objective of a fixed income (or bond) funds is
usually to provide regular income, with less
emphasis on producing capital growth for
investors.

–Money market funds invest in low risk money
market instruments such as short-term deposits
(loans) to banks and short-term government
securities.

12. –REITs invest in real properties, usually prominent
commercial (office) properties.
–It provide the investor with an opportunity to participate in
the property market (which is normally impossible to the
small time investor).
–By acquiring units in a listed REITS, it is possible to gain
exposure to the property market and have diversification in
your portfolio using on a small amount of investment.

–ETF is linked unit trust fund whose investment objective is
to achieve the same return as a particular market index.
–ETF often have low expense ratios and can be bought and
sold throughout the trading day through a stockbroker, on
an exchange.

13. –Some investors may wish to have an investment in all
the major asset classes to reduce the risk of investing in
a single asset class.
–A balanced unit trust fund generally has a portfolio
comprising equities, fixed income securities, and cash.

–The main objective of Syariah funds is to provide an
alternative that satisfies Syariah requirements.
–Syariah funds will exclude those companies involved in
activities, products or services related to conventional
banking, insurance and financial services, gambling,
alcoholic beverages and non-halal food products.

15. OPEN-ENDED CLOSED-ENDED
No of units
outstanding
Unlimited Limited
Not traded on the
stock exchange
Publicly traded on
the stock exchange
Salability Unit holders may
sell back to the
UTMC
Unit holders may
not sell back to the
UTMC, can only be
sold to another
investors.
Price determination Based on Net Asset
Value (NAV)
Based on the supply
and demand
OCT
09’

16. OPEN-ENDED CLOSED-ENDED
No of units
outstanding
Unlimited Limited
Not traded on the
stock exchange
Publicly traded on
the stock exchange
Salability Unit holders may
sell back to the
UTMC
Unit holders may
not sell back to the
UTMC, can only be
sold to another
investors.
Price determination Based on Net Asset
Value (NAV)
Based on the supply
and demand
OCT
09’
Explain the following terms that are related to
investment in unit trusts:
i) Open-End Fund (3.5 marks)
ii) Closed- End Fund (3.5 marks)
OPEN-END FUND:
A type of mutual fund that does not have restrictions on the amount of units the fund
will issue.
If demand is high enough, the fund will continue to issue new units (no limit).
Open-end funds also buy back the units when investors wish to sell.
CLOSE-END FUND:
A closed-end fund is a publicly traded investment company that raises a fixed amount of
capital through a fixed number of units.
The fund is then structured, listed and traded like a stock on a stock exchange.
Holders can only sell the units back between investors.

17. •This is where an investor has a lump sum of monies to invest
into a unit trust. This may be the only investment the
investor wishes to make. It will be sold after a period of time
(3-20 years), when the NAV gets high to gain price
appreciation.
Lump-Sum
Purchase
•Regular (e.g. monthly) contributions is made to invest
in the funds.
Regular
Savings
•Invest using EPF Members’ Investment Scheme.
•Money will be withdrawn from Account 1 of the EPF. EPF Savings
•Investor may obtain a loan from a financial
institution
Borrowing

18. http://fimm.com.my/

http://www.fundsupermart.com.my/

19. •Unit Trust is another type of investment alternatives
available in Malaysia.
•It allows busy and less-knowledgeable investors to invest
and earns return.
•Unit trust investors are typically those with savings to
invest, who has no time nor the expertise to hold portfolios
of direct investments or shares. They prefer to invest in a
secure, reputable investment vehicle which suits their
purposes. Unit trusts allow investors to have easy access to
a wide range of investments not normally available to
them.
•The profits are normally enjoyed in a long term (3-20 years)

20. QUIZZES TESTS OTHER ASSIGNMENTS
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