Unit Trust
Learning Goals <ul><ul><ul><ul><li>Understand what is Unit Trust. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Differentia...
What is Unit Trust? <ul><li>A pooled investment plan where the capital contributions of investors are combined into a lega...
<ul><li>An  indirect investment .  It is also called investment companies.  </li></ul><ul><li>Unit Trust investment offers...
Who Are The Unit Trust Investors? <ul><li>Small or retail investors who neither have the time nor the know-how to hold por...
How a Unit Trust Work? <ul><li>Trust deed  </li></ul><ul><ul><li>An agreement that binds 3 parties (namely, Unit Trust Man...
<ul><li>Management Company </li></ul><ul><ul><li>The promoter of the fund to the public and provides investment expertise ...
Types of Unit Trust <ul><li>Open-End Fund  </li></ul><ul><ul><li>Investors buy and sell shares directly with the mutual fu...
<ul><li>Close-end fund </li></ul><ul><ul><li>Sell only the initial offering  </li></ul></ul><ul><ul><ul><li>Subsequent tra...
<ul><li>How  is close-end fund structured  </li></ul><ul><ul><li>Has board of directors elected by the shareholders.  </li...
Unit Investment Trust <ul><li>Fixed pool of securities, normally bonds </li></ul><ul><li>Not actively managed; securities ...
Real Estate Investment Trusts (REIT) <ul><li>Closed-end investment company that invests in mortgages and various types of ...
Types of Funds <ul><li>Equity Fund </li></ul><ul><ul><li>Primarily invest in the stock market.  </li></ul></ul><ul><ul><li...
<ul><li>Balanced funds </li></ul><ul><ul><li>Generates a balanced return of both current income and long-term capital gain...
<ul><li>Aggressive Growth Fund </li></ul><ul><ul><li>highly speculative mutual fund that seeks large profits from capital ...
<ul><li>Bond Funds </li></ul><ul><ul><li>Invests in various kinds and grades of bonds, with income as primary objective </...
Advantages of Unit Trust <ul><li>Diversification </li></ul><ul><ul><li>Many investors lack sufficient resources to establi...
Disadvantages of Unit Trust <ul><li>Load fee </li></ul><ul><ul><li>This is sales charge added to the fund’s NAV when unit ...
Does the Price of Unit Trust fluctuate ? <ul><li>Unit prices could rise or fall due to value changes of the underlying sec...
Determine the Price of Unit Trust <ul><li>Determined by Net Asset Value (NAV) of the funds managing the portfolio excludin...
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Unit Trust Learning Goals Understand what is Unit Trust.

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Unit Trust Learning Goals Understand what is Unit Trust.

  1. 1. Unit Trust
  2. 2. Learning Goals <ul><ul><ul><ul><li>Understand what is Unit Trust. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Differentiate between type of Unit Trust and type of Unit Trust fund. </li></ul></ul></ul></ul>
  3. 3. What is Unit Trust? <ul><li>A pooled investment plan where the capital contributions of investors are combined into a legally formed trust fund </li></ul><ul><li>Then invested by professional fund managers, acting on behalf of the investors, in a portfolio of marketable securities </li></ul><ul><li>“ Trustee” is appointed to safeguard the rights and interests of the investors </li></ul><ul><li>Investors receive “Units” (shares) in proportion to the amount of money they have contributed to the fund </li></ul><ul><li>Income derived from dividends, interests and capital gains are divided among the unit holders in proportion to their investments. </li></ul>
  4. 4. <ul><li>An indirect investment . It is also called investment companies. </li></ul><ul><li>Unit Trust investment offers a reasonable amount of return with minimal risk . It is done by professional management at minimal cost, minimizing, liquidity, and capital appreciation </li></ul><ul><li>Investors money will be pooled together to be invested in a single diversified investment portfolio which comprise stocks, bonds and others in accordance with the investment objective </li></ul><ul><li>One important feature of unit trust is that professional fund managers are employed to manage the funds. They are highly qualified and experienced in investments. </li></ul>
  5. 5. Who Are The Unit Trust Investors? <ul><li>Small or retail investors who neither have the time nor the know-how to hold portfolios through direct investments. </li></ul><ul><li>Many are highly inexperienced; as a result they turn to these unit trusts management companies to act on their behalf. </li></ul>
  6. 6. How a Unit Trust Work? <ul><li>Trust deed </li></ul><ul><ul><li>An agreement that binds 3 parties (namely, Unit Trust Management Company, the trustee and the unit trust fund’s investors – also called as unit holders) to the deed. </li></ul></ul><ul><ul><li>The trust deed will have to be registered with the Securities Commission. A copy of the trust deed can be bought at the management company. </li></ul></ul><ul><li>Trustee </li></ul><ul><ul><li>Can be the Public trustee of Malaysia or any independent trustee of Malaysia or any independent trustee companies. </li></ul></ul><ul><ul><li>A trustee is generally reputable financial institution appointed by a deed of Trust to look after the interest of the unit holders. </li></ul></ul><ul><ul><li>An independent Trustee is appointed to ensure compliance of the management company with the requirements of the Trust Deed, Securities Commission’s guidelines on Unit Trust Funds and Securities Commissioner Regulations 1996 </li></ul></ul><ul><ul><li>As the legal owner of the assets of the fund, the trustee is responsible to ensure that the fund manager invests the funds according to the trust deed. </li></ul></ul>
  7. 7. <ul><li>Management Company </li></ul><ul><ul><li>The promoter of the fund to the public and provides investment expertise to manage the fund and has the primary responsibility of investing the funds according to the objectives. </li></ul></ul><ul><ul><li>The Management Company also acts as the Registrar of the fund maintaining the records of the unit holders </li></ul></ul><ul><li>Investors or Unit holders   </li></ul><ul><ul><li>The providers of funds through purchase of unit trusts from the management company would expect to receive benefits from the investment. </li></ul></ul><ul><ul><li>If it is an Open-end Fund, the investors can buy units at anytime, as long as the fund has not reached its maximum approved size. </li></ul></ul><ul><ul><li>They can also sell the unit trusts back to the management company,. </li></ul></ul><ul><li>  </li></ul><ul><li>The Securities and Exchange Commission   </li></ul><ul><ul><li>Responsible to safe guarding the interests of the investors who make investments in unit trusts. </li></ul></ul><ul><ul><li>SEC formulates regulations for the operation of unit trusts and has the necessary power to ensure the proper conduct of the business. </li></ul></ul><ul><ul><li>It also has the power to license or suspend the licenses of Management Company to operate unit trusts. </li></ul></ul>
  8. 8. Types of Unit Trust <ul><li>Open-End Fund </li></ul><ul><ul><li>Investors buy and sell shares directly with the mutual fund company without a secondary market </li></ul></ul><ul><ul><li>Have an unlimited number of shares </li></ul></ul><ul><ul><li>Purchase and selling price is determined by the Net Asset Value (NAV) of the fund </li></ul></ul><ul><ul><li>All purchases and sales are completed at the end of the day after the stock markets have closed </li></ul></ul>
  9. 9. <ul><li>Close-end fund </li></ul><ul><ul><li>Sell only the initial offering </li></ul></ul><ul><ul><ul><li>Subsequent trades are done in a secondary market, similar to the common stock market </li></ul></ul></ul><ul><ul><li>Have a limited number of shares </li></ul></ul><ul><ul><li>Investment advisor doesn’t have to worry about cash inflow or outflows </li></ul></ul><ul><ul><li>Purchase and selling price is determined by supply and demand </li></ul></ul><ul><ul><li>Generally sell at premium or discount (usually discount) to NAV </li></ul></ul>
  10. 10. <ul><li>How is close-end fund structured </li></ul><ul><ul><li>Has board of directors elected by the shareholders. </li></ul></ul><ul><ul><li>The board of directors will appoint the fund manager for research, portfolio management and the administration of the fund. </li></ul></ul><ul><ul><li>The fund manager will make recommendation for investments. </li></ul></ul><ul><ul><li>The investment committee will make decisions on investments. </li></ul></ul><ul><ul><li>The public trustee will be responsible to disburse the fund for investment. </li></ul></ul>
  11. 11. Unit Investment Trust <ul><li>Fixed pool of securities, normally bonds </li></ul><ul><li>Not actively managed; securities in portfolio remain static </li></ul><ul><li>Have shares that represent a proportionate share of the trust </li></ul><ul><li>A portfolio of shares is put together by the trust sponsor and these shares are held in safekeeping under conditions set down in a trust agreement. </li></ul><ul><li>Redeemable trust certificates will be sold to investors at NAV plus a small commission. </li></ul>
  12. 12. Real Estate Investment Trusts (REIT) <ul><li>Closed-end investment company that invests in mortgages and various types of real estate investments </li></ul><ul><li>Provide high dividends along with capital appreciation potential </li></ul><ul><li>Types of REITs </li></ul><ul><ul><li>Property/equity REITs invest in shopping centers, hotels, apartments, office buildings and other real estate </li></ul></ul><ul><ul><li>Mortgage REITs invest in mortgages </li></ul></ul><ul><ul><li>Hybrid REITS invest in both properties and mortgages </li></ul></ul>
  13. 13. Types of Funds <ul><li>Equity Fund </li></ul><ul><ul><li>Primarily invest in the stock market. </li></ul></ul><ul><ul><li>High level of risk and are expected to provide a high return in the long term. </li></ul></ul><ul><ul><li>Growth Funds and Index Funds fall into this category of unit trusts </li></ul></ul><ul><li>Income funds </li></ul><ul><ul><li>It produces high level of current income- invest in high-grade shares that pay good dividend. </li></ul></ul><ul><ul><li>Established companies and generally viewed as low-risk. </li></ul></ul><ul><ul><li>Invest in fixed income securities. </li></ul></ul>
  14. 14. <ul><li>Balanced funds </li></ul><ul><ul><li>Generates a balanced return of both current income and long-term capital gains </li></ul></ul><ul><ul><li>Invest in blend of fixed-income securities and common stocks, with 30% to 40% in fixed income </li></ul></ul><ul><ul><li>Allocation between stocks and bonds typically remains constant or varies very little </li></ul></ul><ul><ul><li>Emphasis between fixed-income and common stocks can be shifted as market conditions change </li></ul></ul><ul><ul><li>Less risky investments for relatively conservative investors looking for moderate growth </li></ul></ul><ul><li>Growth Fund </li></ul><ul><ul><li>The primary goal is capital gain and long-term growth. </li></ul></ul><ul><ul><li>Normally offer little dividends or current income. Because of uncertain long-term perspective, it can be quite risky. </li></ul></ul>
  15. 15. <ul><li>Aggressive Growth Fund </li></ul><ul><ul><li>highly speculative mutual fund that seeks large profits from capital gains </li></ul></ul><ul><ul><li>Invest in small, unseasoned companies with high price/earnings ratios </li></ul></ul><ul><ul><li>Often look for turnaround situations </li></ul></ul><ul><ul><li>Prices are often highly volatile </li></ul></ul><ul><ul><li>High risk investments for very aggressive investors </li></ul></ul><ul><li>Islamic Fund </li></ul><ul><ul><li>Fund will invest in shares which complies with syariah Principles. </li></ul></ul><ul><ul><li>The Syariah Principles distinguishes between ‘halal’ and ‘non halal’ type of business activities. </li></ul></ul><ul><ul><li>The returns received would depend on whether investment objective is for growth, current income or a combination of growth and current. </li></ul></ul>
  16. 16. <ul><li>Bond Funds </li></ul><ul><ul><li>Invests in various kinds and grades of bonds, with income as primary objective </li></ul></ul><ul><ul><li>Advantages of bond funds over individual bonds: </li></ul></ul><ul><ul><ul><li>More liquid </li></ul></ul></ul><ul><ul><ul><li>Offer high diversification </li></ul></ul></ul><ul><ul><ul><li>Bond funds automatically reinvest interest </li></ul></ul></ul><ul><ul><li>Lower risk investments for investors who are looking for steady income </li></ul></ul><ul><ul><li>Some price volatility occurs with changing interest rates </li></ul></ul><ul><li>Property trust funds   </li></ul><ul><ul><li>Special type of close-end fund where it invests mainly in real property rather than in shares or bonds. Because of the nature of the investment, the returns are highly speculative. </li></ul></ul>
  17. 17. Advantages of Unit Trust <ul><li>Diversification </li></ul><ul><ul><li>Many investors lack sufficient resources to establish an adequate diversification on their own. </li></ul></ul><ul><li>  </li></ul><ul><li>Funds with variety of objectives </li></ul><ul><ul><li>Different types of funds are created for different investment objectives. So investors should have no problem finding funds that meet their objectives in terms of return and risk </li></ul></ul><ul><ul><li>  </li></ul></ul><ul><li>Record keeping services. </li></ul><ul><ul><li>The management company maintains and administers the records of shareholder’s activity for a given year. This is a great convenience for the investors. </li></ul></ul><ul><li>  </li></ul><ul><li>Professional management </li></ul><ul><ul><li>Fund managers who are knowledgeable about investment and they have good track records of performance, high integrity, etc. </li></ul></ul><ul><li>  </li></ul><ul><li>High liquidity </li></ul><ul><ul><li>Unit trust can be bought and sold easily. Thus they do not suffer from liquidity risk. </li></ul></ul><ul><li>  </li></ul><ul><li>Affordability </li></ul><ul><ul><li>Only a small amount of money is needed to participate in a portfolio of investment which enjoys the same benefits as in direct investment which requires large amount capital. </li></ul></ul><ul><li>  </li></ul>
  18. 18. Disadvantages of Unit Trust <ul><li>Load fee </li></ul><ul><ul><li>This is sales charge added to the fund’s NAV when unit trust is sold. It is as high as 10%.    </li></ul></ul><ul><li>High annual expense </li></ul><ul><ul><li>The operating expenses like accounting, legal, postage, management fees have to be borne by the investors. </li></ul></ul><ul><li>Transaction costs . </li></ul><ul><ul><li>Management companies must also pay transaction costs to buy and sell securities even though they trade in large blocks.. </li></ul></ul>
  19. 19. Does the Price of Unit Trust fluctuate ? <ul><li>Unit prices could rise or fall due to value changes of the underlying securities owned by the Trust Fund.  </li></ul><ul><li>The value of equity fluctuates due to changes in the share prices in the Malaysian Stock Exchange. </li></ul><ul><li>The value of fixed income securities will change due to change in interest rates in the market. </li></ul><ul><li>Returns on Unit Trust can be determined using the below measurement. </li></ul><ul><li>Holding period = Selling price – Purchased price + dividend </li></ul><ul><li>Return Purchased price </li></ul><ul><li>  </li></ul><ul><li>Return of the fund = new NAV – old NAV </li></ul><ul><li>Based on NAV old NAV </li></ul><ul><li>Market returns = new KLCI – old KLCI </li></ul><ul><li> Old KLCI </li></ul><ul><li>Changes of funds return = Return on NAV </li></ul><ul><li>Relative to market return market return </li></ul>
  20. 20. Determine the Price of Unit Trust <ul><li>Determined by Net Asset Value (NAV) of the funds managing the portfolio excluding any liabilities incurred and the number of units in circulation. </li></ul><ul><li>NAV represents the underlying value of a unit share of stock in a particular unit trust. </li></ul><ul><li>NAV is found by taking the total market value of all securities held by the fund, less any liabilities and divided by the number of units on issue. </li></ul><ul><li>NAV = Value of Assets - liabilities </li></ul><ul><li> No. of units outstanding </li></ul>
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