COMPUTERISED UNIT TRUST EXAM

By

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

RISK DISCLOSURE STATEMENT

Outlines main risks involved in loan financing

The higher the margin of financing , 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 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

UNIT TRUST MANAGER

Roles & Responsibilities

Reports to trustee regarding UTS investment

Promotes & distributes UTS
Services the unit holder
Distributes income, calculates unit price
Provides repurchase facilities
Maintains registration of unitholders

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

FIXED INCOME UTS

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

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

GOVERNMENT SPONSORED
UTS
E.g. 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

COLLECTIVE INVESTMENT IN
MSIA
CIS in Msia includes:

UTS
Pension and provident funds
Insurance plan
Pilgrims funds
Investment-linked Funds

INVESTMENT LINKED FUNDS

Promoted by life insurance companies
Investors 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

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 :
x (total investment acquisitions + total investment disposals
----------------------------------------------------------------------Average fund size

DIRECT FEES & CHARGES

Initial service charge
Service, sales, entry, up front
Charges 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

NON DISCRETIONARY FEES &

CHARGES

Annual management fee

Average around 1.5% p.a. to cover cost manageing 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

cost of UTS borne annually by unitholders on each unit held

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
Cost of other investment opportunities

MER = (Fees + Recovered Expenses) x100

Average Fund Size

MER EXAMPLE
RM
Management Fee

31,764

Trustee Fee

6,078

Auditors Fee

1,200

Bank charges & others

2,482

Total expenses

41,524

Average Fund Size RM3,122,250

MER = 41,524
x 100

3,122,250

= 1.33%

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

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

Creation & cancellation price

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 - 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 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

THE IMPACT OF THE INFLATION

OBJECTIVES
A house cost RM150,000 today, how much will it cost for, say
10 years time with the inflation rate of 4%, 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%

4.8%

10 years

222.37 239.72

5%
244.334

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

The Effect of Changes on

Investment returns:Assume an investor invested RM100,000.00 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%)= RM93,457.94
MER
: 2% p.a.
Rate of return
: 12% p.a.
Effective rate of return = 12% - 2% = 10%
n
Compounding factor for a sum of money = (1+i)
5
Compounding factor
= (1+10%)
=1.6105
Future Value
= RM93,457.94 x 1.6105
= RM150,514.01

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)- (d)

5.0

4.5

-0.3

10.0

9.0

12.0

10.8

4.8

+4.2

+6.0

Exercise :
1. Net asset Value is RM250,000 while units in circulation is 1,000,000 units for
fund ABC. Calculate the NAV per unit for FUND ABC
a) RM 0.25
c) RM 0.24
b) RM 0.27
d) RM 0.23
2. Assume that Mr Z wants to invest RM32,000 into Fund ABC. Calculate the
number of units he will get from their investment (Service charge paid
seperately)
a) 118,518.52 units
c)133,333.33 units
b) 128,000.00 units
d) 139,130.43 units
3. Compute he Trustee fee from MER calculation of Fund A
Auditors Fee = RM200
Management fee = RM15,000
Printing annual report=RM500 Printing interim report=RM500
Other expenses RM 5,000.00 Trustee fee = ?
Average fund size is RM1,500,000 and the MER is 1.47%
a) RM800
c) RM700
b) RM850
d) RM750

4. A UTMC declare a unit split 1:10. The NAV per unit split is RM500,000,000.
Units in the circulation per unit split are 250,000,000 units. What is the NAV
per unit after the split?
a) RM 1.71
c) RM 1.80
b) RM 1.70
d) RM 1.82
5. Tax rate
:
20%
Inflation rate :
4.5%
Rate of return:
11%
What are the effective rate of return after tax and inflation?
a) 4.5%
c)4.3%
b) 4%
d)4.2%
6. Assume that the inflation rate raise up to 4.3%, what is the effective of
return?
a) 4.5%
c) 4.3%
b) 4%
d) 4.2%

7. Based on Q5 and Q6, what is/are the conclusion(s) that can be made?
I.
Inflation rate will erode the effective rate of return
II.
Tax rate will not erode the effective of return
III. In order to have positive effective rate of return, one has to ensure
that the rate of return
IV. After tax is greater than inflation rate
a) I, III
c) I, II
b) III only
d) I, IV
8. Arrange accordingly from the highest risk fund to the lowest risk fund rate
I.
Equity fund
III.
Balance fund
II.
Money Market fund
IV.
Hedge fund
a) I, II, III, IV
c)III, IV, II, I
b) IV, I, III, II
d) I, IV, III, II
9. 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

From Q 10 & 11, please refer to data given below

Month
NAV/unit
April
RM0.50
May
RM0.60
June
RM0.70
10. Mr. Dave invested regularly for the past 3 months. His total investment is
RM4,500. What is the average price of his investment?
a) RM 0.60
c) RM 0.43
b) RM 0.59
d) RM 0.56
11. How many unit Mr. Dave had by the end May?
a) 5,500
c) 4,500
b) 7,643
d) 4,000
Q 12 & 13 are to be answered based on the following.
NAV cum-distribution of fund A is Rm150,000,000. Unit in circulation is
100,000,000. The fund declared distribution RM0.10 per unit and the fund
manager is charging 5% for service charge
12. What are the NAV per unit of fund A ex-distribution?
a) RM1.50
c) RM1.40
b) RM1.45
d) RM 1.38
13. What are the NAV per unit of fund A cum- D?
a) a) RM1.50
c) RM1.40
b) RM1.45
d) RM 1.38

14. Mr. 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 RM1,000. 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, 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,
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.
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

16. 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. NAV per unit of fund C is RM0.89, assuming there are 5% service charge
and no redemption charge, how much Mr. Kimar is going to get if he
redeem 5,000 units of his investment in Fund C?
a) RM44,450
c) RM44,672.50
b) RM44,277.5
d) RM44,500
18.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

19. Fund X
Fund Y
Equity 10%
Equity 90%
Money Market 90%
Money Market 10%
Which statement is true?
I. If interest rate rises, it will give an adverse effect on Fund Y
II. If interest rate rises, it will give a positive effect on find X
III. If stock market perform well, it will give a positive effect on fund X
IV. If stock market perform well, it will give an adverse effect on fund Y
a) I and II
c) II, III and IV
b) III and IV
d) all of the above
20.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 financers marked up margin imposed on top of base lending rate
applicable
d) It is charges imposed on future contract

21. Which of the following is correct?

a) When interest rate decrease, bond value will increase
b) 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.

Chapter 2: Regulation of Unit Trusts

Industry

REGULATION OF UNIT TRUST

INDUSTRY

The protection of investors interest

Proper disclosure to investor
Control over market participant
The prevention of improper market practices

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

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

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

Registered persons include:

Pre-approved onstitutions (licensed banks & finance
company, etc)
Persons registered with a body approved by SC i.e.
FMUTM (UTC, IUTA & CUTA)

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

Regulation of Marketing and

Distribution of UT
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
Agency Structure

UNITED FOR EXCELLENT