Comprehensive

CUTE

1
CUTE 010808

Gentle Reminders
Session Duration: 1 full day
Required to sign in TWICE.
Check "ame & IC "o.
Failure to sign will result in
non-attendance.

Agency Development
& Training

CUTE 010808

Gentle Reminders

Agency Development
& Training

CUTE 010808

PROGRAMME OUTLINE
Chapter 1 : Understanding Unit Trusts
Chapter 2 : Regulation of The Unit Trust
Industry
Chapter 3 : Servicing Clients and Marketing
Unit Trusts
Chapter 4 : Industry Code of Ethics and
Standards of Professional Conduct
Chapter 5 : Personal Financial Planning
Chapter 6 : Operations of Syariah-Based UTS
4
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In all sections where applicable:

Replace Persons Dealing in Unit Trusts
(PDUT) with Unit Trust Consultants (UTC)
Replace Institutional Unit Trust Agents with
Institutional Unit Trust Advisers
Replace PDUT with UTC

New Abbreviations
CUTA : Corporate Unit Trust Advisers
CMSA : Capital Markets and Services Act,
2007
5
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Chapter 1
Page 2

Basic Features Of UTS

Collective Investment Scheme

Ownership of fund - divided into units

Returns distribution & capital appreciation

Investment opportunity for small investor

6
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Chapter 1
Page 3

Benefits Of UTS

Diversification

Ready access to funds / liquidity

Professional management

Investment exposure

Lower investment costs

7
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Chapter 1
Page 5

Disadvantages Of UTS

Risk
Loss of Control
Fees and Charges
Opportunity Cost

8
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Chapter 1
Page 5-6

Lump Sum

Method
of
Investing

Reinvestment of income

Regular Savings

9
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Chapter 1
Page 6-8

Leveraging / Gearing
Max loan-to-valuation ratio is 67%
UTC must not directly/ indirectly encourage
sales through loans
Unit Trust Loan Financing Risk Disclosure
Statement
Borrowers must be within 18-55 years of
age
Formula 1:Chapter 1(Page 1)

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Chapter 3
Page 23&37

RISK DISCLOSURE STATEMENT

Outlines main risks involved in loan financing:
The higher the margin of financing, the greater
the potential losses/gains
The servicing of loan repayments may become
more onerous if interest rates rise
Margin Calls may be requested in addition to
normal repayments
Returns are not guaranteed
11
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Chapter 1
Page 7-8

Risks Of Borrowing
Interest rate fluctuations
Default in repayment of loan
Premature repayment of loan
Margin call

12
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Unit Trust Structure

Chapter 1
Page 9-11

(Mode of Operations Governed by the Deed)

U"ITHOLDERS

Money
Possible
Pooled from
Distributions
Investors

TRUSTEE

Safeguard
s the
Assets of
the UTS

Administers
the
Operations
of the UTS

UTS

Possible
Capital Gain
& Income

UTMC

Invests

AUTHORIZED
I"VESTME"T
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Chapter 1
Page 10

Roles & Responsibilities

Reports to trustee regarding UTS
investments
Promotes & distributes UTS
UT
Manager

Services the unit holders

Distributes income, calculates unit
price
Provides repurchase facilities
Maintains registration of
unitholders
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Chapter 1
Page 10

Roles & Responsibilities

Safeguards UTS assets
Ensures funds are invested in
accordance with deed & objectives
Supervises the operations
Trustee

Approves & monitors all financial

transactions
Collects all incomes
15
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Chapter 1
Page 10

Roles & Responsibilities

Invest & responsible for fees that

earned by UTMC & trustee
Unit
Holders

Reap the rewards of the fund

16
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DEED

Chapter 1
Page 10

Rights & obligations of UTMC

Rights & duties of Trustee
Rights of Unitholders
Maximum fees payable
Authorised investment
Valuation of units
Outline way in which changes can be
made to the deed
17
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TYPES OF UTS
Unlisted/Open-End Funds

Chapter 1
Page 11-12

Listed/Closed-End Funds

1. Units are not quoted on a

stock exchange

1. Units quoted and traded on

stock exchange

2. Unit prices are computed

based on the underlying
net asset value of the fund

2. Prices determined by
market forces of demand and
supply

3. Prices remain unchanged

within the same trading day

3. Prices fluctuate throughout

the day and from time to time

4. Size of fund would

increase with the creation
of units and decrease with
the cancellation of units

4. Size of fund remains

unchanged until the next
public issue

5. Transacted directly with

UTMC

5. Investors can only sell their

units through the exchange

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Chapter 1
Page 13-16

CLASSIFICATION OF UTS
EQUITY

ETF

FIXED INCOME

BALANCED

MONEY MARKET

SYARIAH

REIT

GOVERNMENTSPONSORED

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Chapter 1
Page 13

EQUITY UTS
Aggressive Growth Funds
Index Fund
Income fund
International fund

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FIXED INCOME UTS

Chapter 1
Page 14

Mainly invest in corporate bonds,

government securities & MM instruments
Generally provide regular income with
less emphasis on capital growth
Usually more secure
Usually held as portfolio diversification
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Chapter 1
Page 14

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
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Chapter 1
Page 14

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
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Chapter 1
Page 15

EXCHANGE TRADED FUNDS

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 shares
CUTE 010808

24

Chapter 1
Page 15

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
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Chapter 1
Page 15

SYARIAH 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
26
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GOVERNMENT SPONSORED
UTS

Chapter 1
Page 16

E.g. ASN, managed by PNB

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 unit price
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Chapter 1
Page 17

COLLECTIVE INVESTMENTS IN
MSIA
CIS in Msia includes:
UTS
Pension and provident funds
Insurance plan
Pilgrims funds
Investment-linked Funds
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Chapter 1
Page 17

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

Chapter 1
Page 24-28

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 informed investment
decision
30
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Chapter 1
Page 26-27

Portfolio Turnover Ratio (PTR)

An indication of the approach of UTMC to
investment of the UTS portfolio
PTR :
1/2 x [total investment acquisitions + total investment disposals]
Average Fund Size

Formula 2:Chapter 1(Page 1)

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Chapter 1
Page 29

DIRECT FEES & CHARGES

Initial Service Charge
Service, sales, entry, up front
Charged during purchase of units
Fees for Specific Charges
Transfer to other person, switching
Exit Fee or Repurchase Charge
Charged during units disposal
Alternative to Initial Service Charge
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Chapter 1
Page 30

NON DISCRETIONARY FEES &

CHARGES

Annual Management Fee

Average around 1.5% p.a. to cover costs managing UTS
Trustee Fee
Min rate of 0.08% p.a. for Trustee operating expenses
UTS expenses
Other expenses directly related & necessary to the
operation of UTS (Buy & Sell UTS Assets, Tax, Auditor,
Legal, etc)
Management Expense Ratio (MER)
Measure of operating costs of UTS borne annually by
unitholders on each unit held
33
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Slide 33
ST2

Details of Topics
Sean, 09/11/2007

Chapter 1
Page 31

MANAGEMENT EXPENSE RATIO

(MER)
To assess previous years 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
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Management Expense Ratio

E.g.
Management Fee
Trustee Fee
Auditors Fee
Bank Charges & Others
Total Expenses

Ave. Fund Size

MER =

Chapter 1
Page 31

RM
31,764
6,078
1,200
2,482
41,524

RM3,122,250

41524
X 100
3,122,250

= 1.33%
Exclude Syariah Fee
Formula 3:Chapter 1(Page 1)

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Chapter 1
Page 32-37

MEASURING PERFORMANCE
Raw return
Compounded annual return
UTS Performance Table
Total Returns over various time periods
Rankings & Quartiles
Funds under management
Benchmark
Risk measures
Consistency
Qualitative Factors
Formula 4&5:Chapter 1(Page 2)

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UNIT PRICING

Chapter 1
Page 36-43

2 set of unit prices:

Selling & Repurchase price
W.e.f. 1 July 2007, regime for pricing of
UTS has changed from dual-pricing to
single-pricing.
All Buying & selling of units will be
transacted based on SINGLE PRICING,
i.e. NAV.
Creation & Cancellation price
37
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UNIT PRICING

Chapter 1
Page 38-43

Calculation of NAV comprises of:

Investments at market value
Liquidity (cash available for investment)
Transaction Cost Factor (TCF) / Expense
Allowance
Creation and Cancellation Price
Creation Price = NAV + TCF
Cancellation Price = NAV - TCF
Formula 6:Chapter 1(Page 2)

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UNIT PRICING

Chapter 1
Page 43

Forward Pricing
Transaction done based on the price
which will be determined at the end of
the day
Historic Pricing
Transaction done based on the price
which was determined previous day
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UNIT SPLITS &

DISTRIBUTIONS

Chapter 1
Page 44-46

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
Formula 7&8:Chapter 1(Page 2&3)

40
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Chapter 2
Page 1

Regulation of unit trust

industry
The protection of investors interest
Proper disclosure to investors
Control over market participants
The prevention of improper market
practices
41
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Chapter 2
Page 2

Regulatory Structure
 The Securities Commission (SC)
- Securities Commission Act, 1993
- Capital Markets and Services Act, 2007
(CMSA)
Covering UTMC, UTS, IUTA, CUTA, UTC
and fund managers

42
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Chapter 2
Page 3

Regulatory Structure
 Other Government Regulators

Companies Commission of Malaysia

Bank Negara Malaysia
Bursa Malaysia
Bursa Malaysia Securities Clearing Sdn.
Bhd

43
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Chapter 2
Page 3

Regulatory Structure
 FMUTM
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
44
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Chapter 2
Page 3

Regulatory Structure
 Laws & Regulations

Capital Market & Services Act 2007

Securities Commission Act 1993
Guidelines issued by the SC
Guidelines issued by the FMUTM

45
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Chapter 2
Page 4

Regulatory Structure
 Capital Market & Services Act 2007
Introduces a single licensing regime
instead of multiple separate licenses
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
i) a holder of CMSL or
ii) a registered person
46
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Chapter 2
Page 4

Regulatory Structure
Regulated activity:
Dealing in securities (restricted dealing in
UT), fund management, investment
advice & financial planning

Registered persons include :

a) Pre-approved institutions (licensed
banks & finance company, etc)
b) Persons registered with a body
approved by SC i.e. FMUTM (UTC,
IUTA & CUTA)
47
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Chapter 2
Page 3

Regulatory Structure
 Guidelines issued by the SC
Guidelines on UT Funds
Prospectus Guidelines for Collective
Investment Schemes
Guidelines on Marketing & Distribution of
UT Funds
Guidelines on UT Advertisements and
Promotional Materials

48
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Regulatory Structure

Chapter 2
Page 4

 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 (Chapter 4)
Code of Ethics and Standards of Professional
Conduct for Unit Trust Industry (Chapter 4)
Investment Management Standards
49
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Regulation of the UTMC

Chapter 2
Page 4

 Key requirements of a UTMC

To safeguard unitholders interest
Manage & administer in accordance with the
deed, guidelines and laws
Keep proper records of a UTS
Provide UTS reports Interim & Annual
Call for unitholders meeting
Keep register of unitholders
Ensure that information acquired is not
improperly used
To set up a compliance unit and internal audit
unit
50
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Regulation of the UTMC

Chapter 2
Page 5

 Approval of UTMC
- UTS must be managed by UTMC that are
approved by the SC
- To be eligible to act as a UTMC, an
applicant must:
be an entity incorporated in Malaysia
be a license holder under CMSA
comply with Bumiputra and foreign
ownership requirements
satisfied a minimum shareholders
funds at all times as prescribed by the
Act
51
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Chapter 2
Page 6

Regulation of the UTMC

 Approval of UTMC
- Directors of a UTMC comprise at least 2
independent members while
maintaining a minimum ratio of at
least one-third independent members at
all times
- Chief Executive Officer of UTMC must
be registered with the SC as a full-time
officer
52
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Chapter 2
Page 6

Regulation of the UTMC

 Requirements of UTS
- Approval of SC
i) Establishment of new UTS
ii) Registration for the appointment of UTMCs
directors, key personnel, members of UTS
investment committee, syariah committee &
panel of advisers
iii) Registration of deed
iv) Post vetting & registration of prospectus
v) Increase in fund size
vi) Investment in foreign markets
53
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Chapter 2
Page 7

Regulation of the UTMC

 Prospectus of a UTS
- Important legal document & must be
authorized by the directors of UTMC
- Must be registered with SC
- SC may for public information publish a
registerable prospectus before
registration
- Publication or registration does not
mean SC recommends investment or
take responsibility for the prospectus
54
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Chapter 2
Page 8

Regulation of the UTMC

 Advertising of a UTS
- Advertisement must be accurate & honest
- Reference to risks involved in investing in
UTS
- Display warning statements
- Any A&P material by UTMC are subject to
vetting by the SC
- UTC is only allowed to use A&P materials
produced by UTMC, IUTA or CUTA
55
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Chapter 2
Page 9

Regulation of the UTMC

 The Investment Committee
- to oversee the prudent and efficient
investment of each UTS
- must be registered with the SC
- the role of investment committee is to
formulate, implement and monitor the
investment management policies of the
UTS
56
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Chapter 2
Page 10-12

Regulation of the UTMC

 General Characteristic of UTS Investment
UTS may invest in the following that are
consistent with its objectives:
- transferable securities
- cash, deposit & money market
instruments
- unit/shares in collective investments
- derivatives
Investment restrictions and limits
(refer to page 2-12)
57
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Chapter 2
Page 14-16

Regulation of the Trustee

 Key requirements of a Trustee
- A Trust Company registered under
Trust Companies Act, 1949 or Public
Trust Corporation Act, 1995
- Appointment Approved by SC
- Registered with SC
- Independent of UTMC & UTS
58
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Chapter 2
Page 14-16

Regulation of the Trustee



Custody of the assets of a UTS

- all assets of a UTS are held in the
trustees name for safekeeping
Investment policies and transactions
- must be aware of the investment
policies of a UTS and be satisfied that
the investment policies are sound and
in the interests of unitholders
59
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Chapter 2
Page 14-16

Regulation of the Trustee

Dealing in units
- the trustee will create and cancel units
in a UTS when the UTMC requests
Accounts and audit
the accounts of a UTS are required to be
audited at the end of each financial year of
the UTS by an approved auditor appointed by
the trustee

60
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Chapter 2
Page 14-16

Regulation of the Trustee



Reports to unitholders
- Trustee Report is included in the annual report
of the UTS
- The trustee states whether, in its opinion:
the UTMC has managed the UTC according
to the deed, guidelines, act
the valuation/pricing and the creation &
cancellation of units is carried out in
accordance with the deed & regulatory
requirement
61
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Chapter 2
Page 14-16

Regulation of the Trustee

 Report to the SC
- must report to the SC if it is of the view
that the UTMC of a UTS has not
acted in the interest of unitholders, or
in accordance with the deed or
guidelines

62
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Regulation of Marketing and

Distribution of UT

Chapter 2
Page 17-18

UTMC - Designated Distributors

UTC who are tied-agent attached to the UTMC
A staff of the UTMC
IUTA - Designated Distributors
UTC who are attached to the IUTA
A staff of the IUTA
CUTA - Designated Distributors
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 times.
63
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Regulation of Marketing and

Distribution of UT

Chapter 2
Page 18-19

Dealing in UTS

UTMC, 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
- Refer to Appendix 1 (page 2-22)
Authorization Card by FMUTM
Agency Structure
64
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Chapter 2
Page 24

Tiers in Agency Structure

It is standardized and not exceed 4 tiers:
Group agency manager
Agency manager
Agency supervisor
Agent

UTMC encouraged to reduce number of

tiers for the interest of investors
65
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Chapter 2
Page 24

Size of Agency Unit

Should not exceed 50 persons at
all times
A unit comprises supervisor and
his direct downlines
Agent is not allowed to recruit

66
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COOLING OFF RIGHT

Chapter 3
Page 6

Opportunity for investors to reconsider their

investment purchase
Within 6 BUSINESS DAYS
Full refund
Given to a first time investor EXCEPT:
a corporation or institution
a staff of UTMC; and
UTC
67
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REPURCHASE OF UNITS

Chapter 3
Page 6-8

Unitholder has the right to withdraw from UTS

any time
Within 10 CALENDAR DAYS
Repurchase Notice Documents
Repurchase Request Form
Complete payment instruction
Suspension by Trustee (approved by SC)/21
days
68
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Chapter 3
Page 6-8

SWITCH

UTS A

UTS B

Change of market conditions

Personal circumstances
69
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Chapter 3
Page 9

REPORTING TO UNITHOLDERS
On Acquisition of Units
During Period Units in UTS Are Held
INTERIM REPORT
ANNUAL REPORT
On Disposal of Units

70
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Chapter 3
Page 10

REPORTING TO UNITHOLDERS
ANNUAL REPORT
Key performance data
Managers Report
Trustees Report
Financial Statement of UTS and Auditors
Report
71
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Chapter 3
Page 10

REPORTING TO UNITHOLDERS
INTERIM REPORT
Minimum contents:
Managers Report
Trustee Report, and
Financial Statement
should be endorsed by Directors
Need not be audited
72
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Chapter 3
Page 11-13

INCOME DISTRIBUTION
Buying Distributions- buy a distribution
by acquiring units just before ex-D date
Distribution Equalisation a portion of
money set aside from investments to
equalize unitholders distribution income

Formula 1&2:Chapter 3(Page 3)

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Chapter 3
Page 17

EPF TRANSFERS
W.E.F. 1 January 2007, A/C 3 no longer
exists.
All existing savings previously accumulated in
A/C 3 are merged into A/C 2.
Re-shuffled as follows:
A/C 1 Retirement (70%)
A/C 2 Housing loan, education, pre-retirement
withdrawal at age 50 and/or medical expenses (30%)
Formula 3:Chapter 3(Page 4)

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BASIC PRINCIPLES OF
MARKETING UTS

Chapter 3
Page 24

Why Marketing of UTS Fail?

Product Awareness
Not for me
UTS performance
Risk elements
Previous bad experience
Other investment alternatives
75
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OTHER INVESTMENT
ALTERNATIVES

Chapter 3
Page 25,27&38

Cash and FD
Direct Share Investment
Direct Investment in Property
International investment
Financial derivatives products

76
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Chapter 3
Page 28-32

ADVANTAGES INVESTING IN
UT
Diversification
Professional Fund Management
Liquidity
Ease of Purchase

Meeting Investors Longer Term Needs

Dollar Cost Averaging
77
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Chapter 3
Page 28-29

DIVERSIFICATION
Generally invested in a wide range of
securities
Diversifies across asset classes e.g.
shares, fixed income securities, property &
cash

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Chapter 3
Page 29

PROFESSIONAL FUND
MANAGEMENT
All customers benefit from investment
advice
Years of experience in handling
investments
Access to a wide range of resources and
information, specialized research and
market analysis
79
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Chapter 3
Page 30

LIQUIDITY
A measurement of how long it takes to
sell investment
UTMC are obliged to repurchase units
Normally within 10 days

80
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Chapter 3
Page 30

EASE OF PURCHASE
Investors can easily buy units
Only call UTMC, IUTA or UTC to obtain a
prospectus and all information needed to
make investment decision

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Chapter 3
Page 30

MEETING INVESTORS
LONGER TERM NEEDS
longer term needs, e.g.:
home purchase or overseas holiday
childrens future education costs
a retirement fund to complement EPF
Regular savings plan may help to build a
substantial sum of capital
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Chapter 3
Page 30-32

DOLLAR COST AVERAGING

systematic and regular investment
fixed amount of money
if prices are moving down, more units
purchased and can reduce average cost
of entire investment portfolio
used over long periods to maximise its
benefits
83
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Chapter 3
Page 32-34

RISKS INVESTING IN UT

Investment Risk e.g. volatility

Risk of UTMC go out of business
Risk of changes in legislation
Risk of changing fees and investment
policy
Financing/loan/borrowing risk
Returns are not guaranteed
Managers/management risk
Risk of non-compliance
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Chapter 6
Page 10

84

Chapter 3,
Page 32-34

RISKS INVESTING IN UT

Chapter 6
Page 10

Currency risk
Country risk
Market risk
Liquidity risk
Credit/default risk
Inflation risk
Interest rate risk
85
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COMPLIANCE

Chapter 4
Page 3

A form of control against risks & consequences of

breeching law or other internal/external obligations
Benefits to UTC from compliance:
reduction in client complaints
reduced risk of litigation by clients
an enhanced reputation
opportunity for UTC to update knowledge
assurance on continuing career

86
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ETHICS
FMUTM Code :

Chapter 4
Page 4-12
Appendix 1
Page 16-30
Appendix 2
Page 31-34

Part A Code of Conduct for Ordinary Members

of FMUTM
Part B Code of Conduct for organisations
registered as IUTA
Part C Code of Conduct for persons registered
as UTC

2 sections:
A code of Ethics
Standard of Professional Conduct
CUTE 010808

87

UTMC & IUTA

Chapter 4
Page 6-7

CODE OF ETHICS
Professionalism
Integrity
Confidentiality
Dignity
Conflict of Interest

STANDARDS OF PROFESSIONAL
CONDUCT
Compliance with laws
Breach of laws
88
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UTC

Chapter 4
Page 7

CODE OF ETHICS
Honesty, Dignity & Integrity
Fair Dealing
Good Faith
Competence
Confidentiality
Professionalism
Acting with due care, skill & diligence
Prompt, efficient and continuous service
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UTC

Chapter 4
Page 8-10

STANDARD OF PROFESSIONAL CONDUCT

Compliance with laws
use of authorisation 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 industry
disciplinary proceedings
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Chapter 4
Page 10-12

FMUTM DISCIPLINARY
PROCEEDINGS

Appendix 3
Page 35-38

Complaint normally handled by UTMC or

IUTA, but may be referred to FMUTM for
disciplinary proceedings
Complaint to FMUTM- must be in writing

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Financial Planning

Chapter 5
Page 1

A process of meeting an individuals

life goals within a certain time frame
through the proper management of
the individuals present and
future finances.

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The Purpose of
Financial Planning

Chapter 5
Page 2

Help fight inflation

Ensure adequate income in times of need
Provide roadmap of financial objective
Improve present & future lifestyles
Peace of mind
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Chapter 5
Page 2

Areas in Financial Planning

Cash Management
Risk Management & Insurance Planning
Investment Planning
Tax Planning
Retirement & Estate Planning

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Common Approach in
Financial Planning

Chapter 5
Page 4

Key Steps:
Understanding the client
Data gathering
Analysing data
Preparing the plan
Implementing the plan
Reviewing the plan
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UTCS Role
in Investment Planning

Chapter 5
Page 5

Educating investment strategies

Educating risk, liquidity, tax and
management characteristics
Advice use of credit risks, costs involved,
investment strategies such as DCAP & etc.
Discuss & recommend investment classes
or specific investments.
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Chapter 5
Page 7

CLIENT TYPES

Stage 1: Approximately 21-30 years

Stage 2: Approximately 31-44 years
Stage 3: Approximately 45-60 years
Stage 4: Approximately Age 61 years
and above

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Chapter 5
Page 8

Financial Planner vs UTC

Similarities
Do a need analysis
for clients.

Differences
Financial planner
need to have a IA
license.

Understand clients
investment objectives
Need a UTC license.

Financial planner
uses the financial
planning skills.

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Chapter 5
Page 11

TAXATION & INFLATION

How it impacts INCOME RETURN
Tax
rate %
(a)
10

Actual
Return after tax Inflation Return after tax
(d) %
Investment
% (c)
& inflation %
return % (b)
=(b)-[(a)x(b)]
=(c) (d)
5.0

4.5

10.0

9.0

12.0

10.8

Formula 1:Chapter 5(Page 4)

-0.3
4.8

+4.2
+6.0

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THE IMPACT OF INFLATION ON

INVESTMENT OBJECTIVES

Chapter 5
Page 12

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
10

Formula 2:Chapter 5(Page 5)

4%

4.8%

5%

RM

RM

RM

222,037

239,720

244,334

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Chapter 5
Page 12

Rule of 72
72
Given interest rate

72
Given inflation rate

Formula 3:Chapter 5(Page 5)

Years to double given

sum of money

Years to halve a real

value of a given sum of
money
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The effect of charges on investment returns:

Chapter 5
Page 14

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

Future Value
Formula 4:Chapter 5(Page 6)

=( 1+10%)5
= (1+0.1)5
=1.6105
= RM93,457.94 x 1.6105
= RM150,514.01

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Chapter 6
Page 5

What is Syariah-based UTS?

Only invest in instruments that comply with
Syariah requirements.
Areas different with conventional UTS:
Objectives of the funds
Investment strategy
Operations and management of the fund
Documentation
Investment avenues and activities
Accounts and reporting
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Chapter 6
Page 4-5

Syariah vs Conventional UTS

Syariah

Conventional

Objectives of the funds

Achieve both capital and Income can be derived

income growth within
from any sources as
the scope of Syariah
accordance to deed

Investment strategy

Aligned with the

objective of Syariahbased fund

Aligned with the

objective of
conventional fund

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Chapter 6
Page 4-5

Syariah vs Conventional UTS

Operations and
management of the
fund

Syariah

Conventional

UTMC ensure excess

fund invested in
Syariah-based
instrument
Daily operations
comply with SC and
Syariah requirement
Required to appoint a
Syariah
Committee/Adviser
Registered with SC &
renewable every 3
years

Daily operations
comply with SC
requirement
No other restrictions

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Chapter 6
Page 4-5

Syariah vs Conventional UTS

Syariah

Conventional

Documentation

Deed and prospectus

drafted in accordance
with Syariah
requirements

Deed and prospectus

drafted in accordance
with the guidelines of
the SC

Accounts and
reporting

Syariah Committee
/Adviser report is
added in Interim and
Annual report

No need to include
Syariah Committee/
Adviser report in any
report

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THE REGULATORY FRAMEWORK

Chapter 6
Page 6

Securities Laws & Regulations

Empower

Securities

Syariah Advisory

Commission

Council

Regulates
Independent of each other

Trustee

UTMC

Executes

Deed

Issues

Syariah Committee/
Prospectus

Syariah Adviser

Unitholders
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Relationship Between Parties

in A Syariah-Based UTS

Unit
Holders

Chapter 6
Page 7

Unit
Holders

Musyarakah Contract
share among the profit derived
or
any other agreed profit-sharing ratio.
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Relationship Between Parties

in A Syariah-Based UTS
Unit
Holders

Chapter 6
Page 7

UT
Manager

Wakalah (agency)
UTMC act on behalf of unitholders to invest and manage UTS

Bai
Contract of sale and purchase between unitholders and UTMC

Wadiah Yad-Dhamanah (guaranteed custody)

Owners of the units are unitholders, custodian is UTMC
Contract takes place when UTMC receive payment but prior the
creation of units
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Relationship Between Parties

in A Syariah-Based UTS

UT
Manager

Chapter 6
Page 7

Trustee

No direct relationship
Both are agents for unitholders
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Relationship Between Parties

in A Syariah-Based UTS

Unit
Holders

Chapter 6
Page 7

Trustee

Wakalah (agency)
Trustee acts for and on behalf to be the custodian of the fund
Safeguard the interest of unitholders

Wadiah Yad-Dhamanah(after the units created)

Owners of the unit s are unitholders, the custodian is trustee.
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Investment Portfolio

Chapter 6
Page 8

Excess cash/liquid assets -kept/invested in Syariahbased instruments, i.e. Islamic current account or
investment account.
Eg.
Syariah-based units/shares of other collective investment
schemes
Islamic Securities and Corporate Islamic Bonds
Government investment issues
Islamic Accepted Bills
Bank Negara Negotiable Notes
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Chapter 6
Page 11

Appointment of Syariah
Committee/Syariah Adviser
Registered with SC
At least 3 independent members
Minimum 1 full-time officer
Notified SC on resignation

Vacates positions immediately if subject to

disqualification or unfit to hold office
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Roles, Power & Duties

Chapter 6
Page 12

Ensure funds managed according to

Syariah principles
Provide expertise and guidelines
SYARIAH
ADVISER

Consult SC on any ambiguity

Act with due care, skill and diligence
Responsible for scrutinising the funds
compliance report (by compliance officer)

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Roles, Power & Duties

Chapter 6
Page 12

Ensure the following items complies

with Syariah requirements:
UTF reports, transactions, etc
Annual and interim reports
SYARIAH
ADVISER

Deed
Prospectus
Promotional materials

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Syariah Compliance Review

Chapter 6
Page 13

Syariah Advisory Council gathers information

SC publishes booklet - 6-monthly basis (last Friday
of April and October each year)
Booklet highlights areas e.g.:
newly classified Syariah-compliant securities
newly classified Syariah non-compliant securities
benchmark determining Syariah status and etc.

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Syariah Compliance Review

Chapter 6
Page 13

companies will be classified as NON-COMPLIANT

SECURITIES if involved in core activities:
Financial services based on riba(interest)
Gambling
Non-halal products or related products manufacturing
Conventional insurance
entertainment activities that non permissible by Syariah
manufacture or sale of tobacco-based products or
related products
stockbrocking or share trading in Syariah non-compliant
securities

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Disposal of Syariah-Non
Compliant Securities

Chapter 6
Page 14

Compliant Securities to Non Compliant

Securities
To liquidate when value of securities exceeds
original investment cost
Capital gain at the time of announcement - can be
kept by the investors
Capital gain after announcement day should be
channeled to charitable bodies
Investors are allowed to hold investments if Market
Price < Investment cost until dividends received and
market value equals original cost
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Chapter 6
Page 14

Disposal of Syariah-Non
Compliant Securities
Non-compliant Securities
Investors who invest based on Syariah principles are
to dispose any non-compliant securities currently
hold, within a month
Gain made during or after disposal must be
channeled to charitable bodies
Investor has a right to retain original investment cost
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