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COMPUTERISED UNIT TRUST EXAM

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CONTENT
• Chapter 1: Understand Unit Trust
• Chapter 2: Regulation of Unit Trust Industry
• Chapter 3: Servicing Clients and Marketing Unit
Trust
• Chapter 4: Industrial Code of Ethics and
Standards of Professional Conduct
• Chapter 5: Personal Financial Planning
• Chapter 6: Operations of Syariah-Based UTS

Chapter 1 : Understanding Unit Trust

BASIC FEATURES OF UTS • Collective investment scheme • Ownership of Fund – divided unto units • Returns – distributed & capital appreciation • Investment opportunity for small investor .

BENEFITS OF UTS • Diversification • Ready access to funds / liquidity • Professional management • Investment exposure • Lower investment cost .

DISADVANTAGE OF UTS • Risk • Loss of control • Fees and Charges • Opportunity cost .

LUMP SUM METHODS OF STANDARDS REINVESTMENT OF DISTRIBUTION REGULAR SAVING .

BORROWING TO INVEST (GEARING /LEVERAGING) • Max loan to valuation ratio is 67% • UTC must not directly / indirectly encourage sales through loans • Units trust loan Financing Risk Disclosure Statement • Borrowers must be within 18-55years of age .

the greater the potential losses/gain • The servicing of loan repayments may become more onerous if interest rates rise • Margin Calls may be requested in addition to normal repayment • Returns are not guaranteed .RISK DISCLOSURE STATEMENT Outlines main risks involved in loan financing • The higher the margin of financing .

RISK OF BORROWING • Interest rate fluctuation • Default in payment of loan • Premature repayment of loan • Margin call .

Help people to SAVE TIME & have a PEACE OF MIND in investment .

calculates unit price Provides repurchase facilities Maintains registration of unitholders .UNIT TRUST MANAGER Roles & Responsibilities • • • • • • Reports to trustee regarding UTS investment Promotes & distributes UTS Services the unit holder Distributes income.

TRUSTEE Roles & Responsibilities • Safeguards UTS assets • Ensures funds are invested in accordance with deed & objectives • Supervises the operations • Approves & monitors all financial transactions • Collects all incomes Maintains registration of unitholder .

UNIT HOLDERS Roles & Responsibilities • Invest & responsible for fees that earned by UTMC & trustee Promotes & distributes UTS • Reap the rewards of the fund .

TYPES OF UTS Unlisted / Open Ended Listed / Closed Ended Units are not quoted on stock exchange Units are quoted and traded on stock exchange Units prices are computed based on underlying net asset value of the fund Prices determined by market forces of demand and supply Prices remains unchanged within same Prices fluctuate throughout the day trading day and from time to time Size of fund increase with the creation of unit and decrease with the cancellation of units Size of fund remain unchanged until next public issue Transaction directly with UTMC Investors only sell their units through the exchange .

CLASSIFICATION OF UTS • • • • • • Equity Fixed income Money market Exchange traded fund Balanced Syariah Government sponsored .

RISK & RETURN Assets classes are categories of investment instruments with similar risk-return characteristic Purchased return Equities Aggressive equities Balanced Equities Bonds (fixed income ) Cash (money market) Risk Different investment asset classes exhibit different risk-return characteristic .

EQUITY UTS • Aggressive growth funds Fixed income • Index fund • Income fund • International fund .

government securities & MM instruments • Generally provide regular income with less emphasis on capital growth • Usually more secure • Usually held as portfolio diversification .FIXED INCOME UTS • Mainly invest in corporate bonds.

MONEY MARKET UTS • Operate in similar way to bank account – init 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 .

REAL ESTATE INVESTMENT TRUSTS • Invest in real property • Returns rental income and capital appreciation • Most are listed on stock exchange • Units in listed REIT can be bought and sold through stockbrokers .

EXCHANGE TRADED FUNDS
• Investments 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 shares

BALANCED UTS
• Generally has a portfolio comprising equities
fixed income securities, cash & property
• Exhibit lower volatility than most single asset
class of UTS
• Prospect of returns higher than money market
UTS, saving accounts and fixed deposits

SYARIAH UTS
• Catered for syariah cencerned 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 the riba‟
or usury interest

ASH. managed by PNS • Generally invest on a balanced basis although equity invested UTS are also available • Equity invested – may have fluctuating and variable unit price • Balanced basis – normally have fixed RM1.00 u/p .GOVERNMENT SPONSORED UTS • E.g.

COLLECTIVE INVESTMENT IN M‟SIA • CIS in M‟sia includes:– – – – – UTS Pension and provident funds Insurance plan Pilgrims‟ funds Investment-linked Funds .

of units in investment pool • Single premium and regular premium • Not subject to scrutiny by SC or monitored by Trustee . which represents no.INVESTMENT – LINKED FUNDS • Promoted by life insurance companies • Investors acquires life insurance policy.

PROSPECTUS • Legal document containing legal accounting and investment terms • No sales can be made without a prospectus • Each UTS must provide prospectus • Updated every 12 months • Purpose – Provide necessary information – Make an information investment decision .

PORTFOLIO TURNOVER RATIO (PTR) • An indication of the approach of UTMC to investment of the UTS portfolio (Active vs Passive) • Formula : ½ x (total investment acquisitions + total investment disposals ----------------------------------------------------------------------Average fund size .

„up front‟ – Charges during purchase of units • Fees for specific charges – Transfer to other person.DIRECT FEES & CHARGES • Initial service charge – Service. entry. sales. switching • Exit fee or repurchase charge – Charged during units disposal – Alternative to initial service charge .

Auditor.a.NON DISCRETIONARY FEES & CHARGES • • • Annual management fee – Average around 1.5% p. for trustee operating expenses UTS expenses – Other expenses directly related & necessary to the operation of UTS (buy & sell UTS Assets. etc) • Management Expense Ratio (MER): Measure of operating cost of UTS borne annually by unitholders on each unit held .a. (legal. Tax.08% p. to cover cost manageing UTS Trustee fee – Min rate of 0.

– MER of competitor UTS.MANAGEMENT EXPENSE RATIO (MER) • To assess previous year‟s cost of holding units in UTS and compare it to: – Past and prospective returns. and – Cost of other investment opportunities MER = (Fees + Recovered Expenses) x100 Average Fund Size .

524 Average Fund Size RM3.524 x 100 » 3.122.250 » MER = 41.122.33% .250 » = 1.200 Bank charges & others 2.764 Trustee Fee 6.482 Total expenses 41.078 Auditor’s Fee 1.MER EXAMPLE RM Management Fee 31.

MEASURING PERFORMANCE • Raw return • Compounded annual return • UTS Performance Table – Total Returns over various time periods – Ranking & quartiles – Funds under management • • • • Benchmark Risk measures Consistency Qualitative factors .

1 July 2007.e.f. regime for pricing of UTS has changed from dual-pricing to single pricing – Creation & cancellation price .UNIT PRICE • 2 set of units price:– Selling & Repurchase price • W.

TCF • Forward pricing – Transaction done based on the price which will be determined at the end of the day • Historic pricing (not practice) – Transaction done based on the price which was determined previous day .UNIT PRICING • Calculation of NAV comprises of:– – Investments of market value Liquidity (cash available for investment) • Transaction cost factor (TCF)/ Expenses Allowance • Creation and cancellation price – Creation price = NAV + TCF – Cancellation price = NAV .

UNIT SPLITS & DISTRIBUTION • Unit Split – A split is the division of a single unit in UTS into several units • Distributions – Payments made to unitholders out of the accounting income of UTS – To be paid or reinvested .

72 5% 244.THE IMPACT OF THE INFLATION OBJECTIVES A house cost RM150.37 239.334 .000 today.8% 10 years 222. say 10 years time with the inflation rate of 4%.8% or 5%? n – Compounding factor for a sum of money = (1+i) i=inflation rate n=no of years End of year 4% 4. 4. how much will it cost for.

RULE OF 72 72 Given interest rate Years to double given sum of money 72 Given inflation rate Years to halve a real value of a given sum of money .

a. Effective rate of return = 12% . Rate of return : 12% p.6105 = RM150.01 .457.514.457.6105 Future Value = RM93.000.The Effect of Changes on Investment returns:Assume an investor invested RM100.00 in a UTS that has initial entry of 7% with an MER of 2% for 5 years and 12% of return every year Working Money : RM100k(1+7%)= RM93.94 MER : 2% p.2% = 10% n Compounding factor for a sum of money = (1+i) 5 Compounding factor = (1+10%) =1.a.94 x 1.

0 4.2 +6.0 10.3 10.8 +4.0 12.(d) 5.0 .TAXATION & INFLATION How it impact INCOME RETURN Tax rate % (a) 10 Actual Investment return % (b) Return Inflation after tax rate (d) % % (c) =(b)((a)x(b)) Return after tax & inflation % = ( c).5 -0.8 4.0 9.

00 Trustee fee = ? Average fund size is RM1.000 units for fund ABC.000 Printing annual report=RM500 Printing interim report=RM500 Other expenses RM 5. Calculate the NAV per unit for FUND ABC a) RM 0.130.43 units 3.518.25 c) RM 0.500.00 units d) 139.000 while units in circulation is 1.Exercise : 1. Assume that Mr Z wants to invest RM32.000.47% a) RM800 c) RM700 b) RM850 d) RM750 .33 units b) 128.000. Compute he Trustee fee from MER calculation of Fund A Auditors Fee = RM200 Management fee = RM15.000 and the MER is 1. Net asset Value is RM250.27 d) RM 0.23 2.24 b) RM 0.333. Calculate the number of units he will get from their investment (Service charge paid seperately) a) 118.000.52 units c)133.000 into Fund ABC.

5% Rate of return: 11% What are the effective rate of return after tax and inflation? a) 4. A UTMC declare a unit split 1:10.4. Assume that the inflation rate raise up to 4.5% c)4.000.2% 6.000.2% .70 d) RM 1.71 c) RM 1.80 b) RM 1.82 5. Tax rate : 20% Inflation rate : 4.5% c) 4.3% b) 4% d) 4. Units in the circulation per unit split are 250.000. what is the effective of return? a) 4.3% b) 4% d)4. The NAV per unit split is RM500.3%.000 units. What is the NAV per unit after the split? a) RM 1.

II. Equity fund III. Money Market fund IV. IV. III. Arrange accordingly from the highest risk fund to the lowest risk fund rate I. one has to ensure that the rate of return IV. III. Based on Q5 and Q6. what is/are the conclusion(s) that can be made? I. IV. I. IV 8. II b) III only d) I. I b) IV. II d) I. After tax is greater than inflation rate a) I. Tax rate will not erode the effective of return III. III. III c) I.7. In order to have positive effective rate of return. II. Balance fund II. IV c)III. II 9. Hedge fund a) I. Which of the following best describes a close ended fund? a) Units are not quoted in an exchange b) Prices are determined by the market forces of demand and supply in Bursa Malaysia c) Prices remain unchanged throughout trading day d) Forward pricing is practiced . Inflation rate will erode the effective rate of return II.

Unit in circulation is 100. please refer to data given below Month NAV/unit April RM0.59 d) RM 0.40 b) RM1.643 d) 4.38 13.500 b) 7.500 c) 4. The fund declared distribution RM0.000. His total investment is RM4.56 11.10 per unit and the fund manager is charging 5% for service charge 12.From Q 10 & 11.60 c) RM 0. What are the NAV per unit of fund A cum. How many unit Mr.43 b) RM 0.500. Mr.000.000.70 10. Dave had by the end May? a) 5.D? a) a) RM1.40 b) RM1.50 c) RM1.000 Q 12 & 13 are to be answered based on the following. Dave invested regularly for the past 3 months.60 June RM0.000.50 May RM0.45 d) RM 1.50 c) RM1.45 d) RM 1. What is the average price of his investment? a) RM 0. NAV cum-distribution of fund A is Rm150.38 . What are the NAV per unit of fund A ex-distribution? a) RM1.

000. plus or minus any charge in the value of the property over the period c) Units in the listed REIT can be bought and sold through stockbrokers. The statement below are valid about REIT except a) All REIT are open ended fund and the units are not listed in the stock market b) Return from property comprise net rental income. A chooses Real Estate Investment Trust (REIT) that invests in real property which provides him with an opportunity to participate in property market in a way which is normally impossible for an individual investor like him as he only has RM1.14. 15 A gradually decreasing MER over the period of several years indicates that a) The fund manager is reducing the annual management fee b) The management company may be managing its operating cost effectively for its fund size c) The performance of the fund is getting better than previously d) The performance of the fund is getting worse than before . Mr. and UTC would not normally arrange to buy or sell units for an investor d) The prices at which units in REIT trade on Bursa Saham will reflect the returns.

NAV per unit of fund C is RM0.450 c) RM44. Which of the following charges is the free levied by managers on investment to cover the cost of distributing the unit trust? a) Management Fee c) Trustee Fee b) Initial service charge d) Repurchase Fee 17. how much Mr.50 b) RM44. Kimar is going to get if he redeem 5.672.277. assuming there are 5% service charge and no redemption charge.5 d) RM44.000 units of his investment in Fund C? a) RM44.Which of the following benchmark below cannot be used as a fund performance benchmark? a) KL Inter-bank rate c) Current account as a % of GDP b) KLCI d) 5 year bond rate .500 18.16.89.

III and IV b) III and IV d) all of the above 20. it will give an adverse effect on Fund Y II. Fund X Fund Y Equity 10% Equity 90% Money Market 90% Money Market 10% Which statement is true? I. If stock market perform well.19. If interest rate rises. If stock market perform well. it will give a positive effect on find X III.What is your understanding of “call margin” a) It is the amount the investor might have to pay his/her financer if the credit of unit trust loan falls beneath a certain level b) It is a type of processing fee imposed by financer to finance unit trust investment c) It is a financer‟s marked up margin imposed on top of base lending rate applicable d) It is charges imposed on future contract . it will give a positive effect on fund X IV. If interest rate rises. it will give an adverse effect on fund Y a) I and II c) II.

21. Which of the following is correct? a) When interest rate decrease. . bond value will decrease c) There is no relationship between interest rate and stock market d) There is no relationship between interest rate and bond. bond value will increase b) When interest rate decrease.

Chapter 2: Regulation of Unit Trusts Industry .

REGULATION OF UNIT TRUST INDUSTRY • • • • The protection of investor‟s interest Proper disclosure to investor Control over market participant The prevention of improper market practices .

UTC and fund manager . UTS. IUTA. CUTA.REGULATION STRUCTURE • The Securities Commission (SC) – Securities Commision Act 1993 – Capital Markets and Services Act 2007 (CMSA) Covering UTMC.

OTHER GOVERNMENT REGULATORS • • • • Companies Commission of Malaya Bank Negara Malaysia Bursa Malaysia Bursa Malaysia Securities Clearing Sdn. Bhd. .

FIMM & its roles • Registering body for all UT distributors and management companies • Provides self-regulation for the unit trust industry • Formulates sound & ethical business practices • Provides investor protection .

LAW & REGULATIONS (UNIT TRUST INDUSTRY) • • • • Capital Market & Services Act 2007 Securities Commission Act 1993 Guidelines issued by the SC Guidelines issued by the FIMM .

Capital Market & Services Act 2007 • Introduces a single licensing regime instead of multiple separate licences • Allow capital market intermediaries to hold one license to carry on any one or more regulated activities • Any person carrying out any regulated activity such as dealing in UT must be – A holder of CMSL or – A registered person .

e. investment & financial planing • Registered persons include: – Pre-approved onstitutions (licensed banks & finance company. fund management.Regulatory Structure • Regulated activity: – Dealing in securities (restricted dealing in UT). IUTA & CUTA) . etc) – Persons registered with a body approved by SC i. FMUTM (UTC.

Guidelines issued by the SC • Guidelines on UT Funds • Prospective Guidelines for Collective Investment • Guidelines on Marketing & Distribution of UT Funds • Guidelines on UT Advertisements and Promotional Materials .

Guidelines issued by the FMUTM • Guidelines for Registration of Institutional Advisers for the Marketing & Distribution of unit Trust (IUTA) • Guidelines for Registration of Corporate Advisers for the Marketing & Distribution of Unit Trust (CUTA) • By-laws Relating to the procedure for disciplinary proceedings • Code of Ethics and standard of professional conduct for Unit Trust Industry • Investment Management Standards .

Regulation of Marketing and Distribution of UT • • • • UTMC – designated Distributors – UTC who are tied agent attached to the UTMC – A staff of the UTMC IUTA – Designated Distribution – UTC who are attached to the IUTA – A staff of the IUTA CUTA – Designated Distributed – UTC who are attached to CUTA – Must first be licensed by the SC as Financial Planning Representative before applying to be a UTC An IUTA & CUTA must ensure that a minimum of 2 UTCs are – Stationed at each Distribution Point at all time .

IUTA & CUTA are responsible for ensuring that all person involved in the marketing and distribution of UT are UTC registered with and authorized by the FMUTM • Eligibility Requirement for an Authorized person who is an individual • Agency Structure .Regulation of Marketing and Distribution of UT • Dealing in UTS • UTMC.

UNITED FOR EXCELLENT .