Lesson 3 – Investment In Unit Trust
The Role of Regulator
The Securities Commission Act 1993 provides that the Securities Commission (SC) is responsible for regulating all matters relating to unit trust schemes.
The SC has drawn up a set of Guidelines on Unit Trust Funds (Guidelines) to ensure a fair and consistent application of policies in considering proposals by management companies of unit trust funds.
The Guidelines are formulated with the objective of providing a regulatory framework that would protect the interests of the investing public and facilitate an orderly development of the unit trust industry. The requirements of the Guidelines are to be complied with by all parties involved in a unit trust scheme.
In addition to the above Act and Guidelines, all unit trust management companies must comply with the Companies (Amendments) Act 1997, the Securities Industry Act 1983 and Trustee Act 1949.
The Role Of The Trustee
Whatever may happen to their performance over time, unit trust managers have a reputation for the stability of their funds that is second to none. Much of this is due the legal framework in which they operate. The government lays down strict rules that unit trusts have to follow and the machinery for ensuring that this is done.
Every individual fund has its own independent trustee, although for administrative simplicity, it is not unusual for unit trust management companies to engage one trustee for all funds. The trustee can be the Public Trustee of Malaysia or any independent trustee of Malaysia or any independent trustee companies.
The trustee’s primary role is to see that the terms of the fund’s deed are adhered to. The deed is a set of rules under which the trust is run, setting out such things as the investment scope of the fund.
The funds’ assets are always in the custody of the trustee. Although the manager makes the decisions about the management of those assets, when to buy and sell, he cannot get his hands on them directly. This system ensures that the funds will not be used for fraudulent purposes. The manager has to deal via the trustee who will ensure that the day-to-day work of running the trust, the funds’ accounts, valuations and calculations of unit prices are carried out properly and in accordance with both the deed and the rules laid down by the SC.
The trustee is also responsible for seeing that all the relevant paperwork is carried out. The trustee takes responsibility for overseeing the creation and cancellation (release) of units in the fund. The Guidelines also stipulate that unit trust managers have to produce semi annual and annual reports to its unitholders.
Where Would The Trust In Units Be Without The Trustee ?
Guidelines On Unit Trust Funds
In addition to the regulatory and safeguarding roles of the Regulator and Trustee respectively, the Guidelines provide additional safety features to protect the interest of the investing public. The Guidelines describe the characteristics of the investments permitted as opposed to prescribing the investments (which was previously investment in authorised Malaysian assets only) Furthermore, the Guidelines also reinforce the safety net by ensuring the funds are not overly exposed to high risk stocks and any single group of companies.
The Guidelines are subject to review by the Securities Commission as and when it deems fit and necessary to protect and ensure the growth of the industry.
The Federation of Malaysian Unit Trust Managers (FMUTM)
The first unit trust fund in Malaysia was launched in 1959. Who would then have imagined that years later there would be billions of ringgit in funds under management?
The rapid growth of the industry in recent years has led to the formation of the Federation of Malaysian Unit Trust Managers on 7 August 1993.
The Federation was set up with four objectives :
a. To promote the industry
b. To agree on standards of practice for the protection of the interests of unitholders.
c. To maintain the good name of the industry
d. To improve regulations, tax and other rules affecting the sales of unit trusts.
The Federation is represented by most of the unit trust managers in the Industry