Although there may be many variations of Unit Trust Schemes, the structure is generally the same for all. A unit trust scheme is a non-incorporated collective investment scheme. Its purpose is to pool the savings of investors with the intention of investing and managing the savings for the investors' benefit.
The rules governing the operation of each Unit Trust Scheme is called a deed. The deed names the Unit Trust Management Company and the trustees. It provides details of how the unit trust scheme is to operate. The trustees are appointed to supervise the operation of the scheme. The duties of the trustees and the unit trust management company are clearly spelled out in the deed. Unit holders are also bound by the deed. Their legal rights are described in the deed, in case the terms of the deed is not followed.
The assets of the unit trust scheme are held in the name of the trustees. This is a safeguard separating the assets of the unit trust scheme from that of the Unit Trust Management Company, so that the unit holders are protected in case the management company go into liquidation. The assets are held by the trustees on behalf of the unit holders. Even if the trustees go into liquidation, the assets are not legally able to be paid to the trustees' creditors. Although the assets are registered in the name of the trustees, the beneficial ownership of these assets remain in the hands of the unit holders.
The three parties with a role in the Deed are:
The Unit Trust Management Company
The unit trust management company reports to the trustee about the purchase, sale and management of investments in the unit trust scheme. They also promote and sell units of the scheme to investors (also known as unit holders), and buy back units from investors who wish to sell back the units. The management company keeps a record in order to calculate the selling and buying prices and to determine the amount of distribution payable to the investors.
Trustee
The trustee is responsible to the unit holders to safeguard their investment, and to ensure that the money is invested according to the terms of the deed. They supervise the operations to ensure that the objectives are followed by the unit trust management company. The trustees also approve and monitor all financial transactions, they hold title documents of all the assets of the unit trust scheme, and they collect all income entitled on the investments.
Unit Holders
The Unit Holders, also called investors, supply the capital to be invested by the Unit Trust Management Company on their behalf. They are responsible for paying a fee to the management company and the trustee. Unit holders hold units, the value of which is determined by a formula set out in the deed. It is based on dividing the market value of the net assets of the scheme by the number of units in circulation. Unit holders buy units in the scheme by completing the application form contained in the Unit Trust Scheme prospectus.
Deed
The deed is the document that shows the rights and obligations of the Unit Trust Management Company, the rights and duties of the Trustee, and the rights of the Unit Holders. It mentions the maximum fee payable, describe the type of investment that particular scheme can make, prescribe how the value of a unit in the scheme can be determined, and determine how the price of a unit sold to unit holders and thereafter bought from them can be calculated. The deed also outline what steps should be taken should there be a need to make changes to the deed itself. Usually, this includes getting the consent of the unit holders who are asked to vote on the proposed changes. Also set out on the deed are the responsibilities of the auditor appointed by the trustee of the unit trust scheme.
Prospectus
The prospectus is a document providing information on the unit trust scheme. When a Unit Trust Scheme is offered to the public, the law requires that a copy of the prospectus be made available to people interested in investing in the scheme. This allows prospective investors the opportunity to make sound investment decision.
The prospectus must be registered with the Securities Commission. It must contain certain information required by law. It must be accurate and not misleading. The people involved in preparing it are accountable for its contents. If there are misrepresentations in the prospectus, legal remedies are available to investors. By completing and signing the application form from the Unit Trust Scheme prospectus, an investor becomes a unit holder of the scheme, and a party to the deed.
The information provided in this article is related to unit trust, also called mutual fund, in Malaysia.
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