Unit Trust Schemes

Unit Trust Schemes are a way for people to invest in unit trust. Unit trust is a form of collective investment. It allows people to pool their savings so that they can invest in a portfolio of shares and other assets. This portfolio is managed by investment professionals. In the case of unit trust, the professionals are called the Unit Trust Management Companies. The scheme of creating, managing and investing in this portfolio of investment is called a Unit Trust Scheme.

When investing in unit trusts, investors do not purchase the shares directly. Instead, the shares go into the portfolio, and are divided into "Units of Entitlement". Investors buy these units and are called unitholders. A unit represents a proportion of share in the pool of investments. As the value of the portfolio increase or decrease, so too the value or unit price of each unit. In cases where the portfolio is not subject to changes in value, for example in Government-sponsored funds, the unit price is fixed.

Unitholders are not shareholders in the company that the Unit Trust Management Companies invest in. Rather, they are beneficiaries under a trust set up by the Unit Trust Management Company. Within the unit trust constitution, there must be a trustee who looks after the interest of the investors. The trustee is the legal owner of all the assets of the unit trust scheme, and does it on behalf of the unitholders. Unitholders have beneficial interest in the asset of the unit trust scheme, but are not entitled to direct the Unit Trust Management Company on how to invest the portfolio.

The return on investment in unit trust comes in two forms: as a regular payment called "distribution", and as capital appreciation. Each unit purchased by the unit holder represents an equal amount of income and capital appreciation or depreciation affecting the unit price.

People who invest in unit trust are usually those with relatively small amounts to invest. They are people who do not have the time, the money or the interest to buy shares directly. Unit Trust Schemes allow small investors to invest in a wide range of investments to which they would otherwise not be able to do.

Unit Trust Schemes provide a good way for people to enjoy investments that, over a long run, produce better returns than from traditional savings accounts and fixed deposits.

There is of course a risk in seeking these higher returns. People who invest in unit trusts are those who are willing to invest for the long term, say over five years, as the returns for periods shorter than that is usually better with fixed deposits. However, over the long term, unit trust schemes provide far better returns.

As a recap of what we learn in this chapter, unit trust is a form of investment. Unitholder is the person who invests in unit trust. The investment is in the form of units. The company that manages the portfolio of investment is the Unit Trust Management Company. A trustee is the legal owner of the asset of the unit trust scheme, and looks after the interest of the unit holders.

The information provided in this article is related to unit trust, also called mutual fund, in Malaysia.

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