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Introduction To Unit Trusts

 

What are Unit Trust Funds?
Unit Trusts or more commonly known in the United States as mutual funds, are a form of collective investment that allows investors with similar investment objectives to pool their funds to be invested in a portfolio of assets. These portfolio may include asset classes such as:
 
  1. Transferable securities;
  2. Cash, deposits and money market instruments;
  3. Unit/shares in collective investment schemes; and
  4. Derivatives.
 
Investors or Unitholders do not actually purchase the securities in the portfolio directly, rather the ownership of the fund is divided into units of entitlement. As the value of the fund increase or decrease the corresponding value of each unit increases or decreases accordingly. The number of units held depends on the amount of money invested as well as the unit price at the time of investment.
 
The return on investment in unit trust is usually in the form of dividend distribution and capital appreciation, derived from the underlying investment of the unit trust fund. Each unit earns an equal return, which is determined by the quantum of distribution as well as the capital appreciation.
Parties Involved in a Unit Trust
The investment scheme of a unit trust fund can be illustrated as a tripartite relationship between the manager, the trustee and the unitholders. The Manager is responsible for the management and operations of the unit trust fund whilst the Trustee holds all the assets of the unit trust fund. The obligations and rights of each of the three parties are specified in the Deed, (a legal document entered into between the manager and the trustee, and registered with the Securities Commission).
 
The Deed regulates the duties and responsibilities of the manager and the trustee with regard to the operations of the trust fund and protects the Unitholders' interests.
History of Unit Trusts
The concept of Unit Trust was introduced in Malaysia in the year 1959 and developed over the years in four recognisable periods namely:
 
The Formative Years: 1959 -1979
The first couple of decades in the history of the unit trust industry were characterised by slow growth and a lack of public interest in the new investment product. Only five unit trust management companies were established, with a total of 18 funds introduced over that period. The industry was regulated by several parties including the Registrar of Companies, The Public Trustee of Malaysia, Bank Negara Malaysia and the Ministry of Domestic Trade and Consumer Affairs.The 1970s also witnessed the emergence of state government sponsored unit trusts, in response to the Federal Government's call to mobilise domestic household savings. The 1980s also marked a significant development in the history of the industry when Skim Amanah Saham Nasional (ASN) was launched by Permodalan Nasional Berhad (PNB) in 1981. Despite only 11 funds being launched during this period, the total units subscribed by the public swelled to an unprecedented level because of the overwhelming response to ASN.In addition, the 1980s witnessed the emergence of more unit trust management companies, which were subsidiaries of financial institutions. Their participation facilitated the marketing and distribution of unit trusts through bank's branch network which widened investor reach.
The Period from 1980 to 1990
This period marked the entry of government participation in the Unit Trust Industry and the formation of a Committee to regulate the unit trust industry, called the Informal Committee for Unit Trust Funds, comprising representatives from the Registrar of Companies (ROC), the Public Trustee of Malaysia, Bank Negara Malaysia (BNM) and the Capital Issues Committee (CIC).The 1970s also witnessed the emergence of state government sponsored unit trusts, in response to the Federal Government's call to mobilise domestic household savings.The return on investment in unit trust is usually in the form of dividend distribution and capital appreciation, derived from the underlying investment of the unit trust fund. Each unit earns an equal return, which is determined by the quantum of distribution as well as the capital appreciation.
The Growth Period: 1991 to 1999
This period witnessed the fastest growth of the unit trust industry in terms of the number of new management companies established and funds under management. The centralisation of industry regulation, with the establishment of the Securities Commission on 1 March 1993, coupled with the implementation of the Securities Commission (Unit Trust Scheme) Regulations in 1996 and extensive marketing strategies adopted by the ASN and ASB (Amanah Saham Bumiputera), played key roles in making unit trusts household products in Malaysia. Consequently, the total asset value of funds under management grew more than threefold from RM15.72 billion at the end of 1992 to RM59.95 billion at the end of 1996. The period also saw greater product innovation and deregulation of the industry.
Liberalisation: The Period from 2000 to current
In 2005 the unit trust industry experienced another year of strong growth which saw the net asset value of managed funds capitalising 14.2% of Bursa Malaysia’s market at RM98.5 billion at the end of 2005. Further, the liberalisation of overseas investment rules (such as the increase in overseas investment limit from 10% to 30%) by Bank Negara Malaysia has seen unit trust management companies launching numerous offshore funds or realigning investment strategies of domestic funds to invest offshore up to the permitted limit.