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. All parties involved in a unit trust scheme must comply with the requirements of the Guidelines.

In addition to the above Act and Guidelines, all unit trust management companies must comply with the Capital Markets and Services Act 2007, Companies (Amendments) Act 1997, the Securities Industry Act 1983 and Trustee Act 1949.

The Role of The Trustee

Every individual unit trust fund has its own independent trustee. However, it is not unusual for unit trust management companies to engage one trustee for all funds for administrative simplicity. The trustee can be the Public Trustee of Malaysia, any independent trustee of Malaysia or any independent trustee companies.

The trustee’s primary role is to ensure the terms of the fund’s deed are adhered to. The funds’ assets are always in the custody of the trustee. Although fund management companies make the decisions about the management of those assets, they cannot get their hands on the assets directly. This system ensures that the funds will not be used for fraudulent purposes. The management company has to deal with 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 overseeing the creation and cancellation (release) of units in the fund. The Guidelines also stipulate that unit trust management companies have to produce interim and annual reports to its unitholders.

Guidelines on Unit Trust Funds

In addition to the regulatory and safeguarding roles of the Regulator and Trustee respectively, the Guidelines on Unit Trust Funds provide additional protection to 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 disclose the investment strategy and risks exposed so that investors can make informed decisions.

The Guidelines are subject to review by the Securities Commission as and when 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 is represented by most of the unit trust management companies in the industry.

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.