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UNIT TRUST

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Learning Outcome

To understand that trust is also a tool for capital investment

To learn the concept of unit trust. To apply the relevant principles of trust in

business

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What is Unit Trust

A trust which is set up under a trust deed made between parties known as trustee and the manager.

A kind of deed of settlement company which is previously known as a management trust – (19th Century)

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Sykes v Beadon (1879) 11 Ch D 170

Management trust was held to be illegal

Result : all management trust were wound up or registered as companies under Companies Act.

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Smith v Anderson (1880) 15 Ch D 247

One (Submarines’ Cable Trust) continued in existence and contended the decision of illegality and succeed.

Court of Appeal held that Sykes v Beadon had been wrongly decided.

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1930 : the institution was reintroduced as Unit Trust

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General principles

Securities are vested in the trustee under the trust deed, on trust for manager.

Manager held beneficial interest which is divided into a large number of units, sub- units or shares.

These will be offered to the public at a price based on market value of the securities plus service charges.

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Investors = beneficial owner of an undivided share of securities proportion to the number of units that he holds.

Trust deed plays an important roles as many matters are dealt in it.

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Matters in trust deed

Provisions for: Remuneration of trustee and the manager Managers to repurchase shares from unit

holders who wish to dispose of their investment.

Resale by manager to new investors. Duration of trust Extension of trust ( if unit holder so desire)

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Types

1) Fixed Unit trust.

- The portfolio of investments remain unaltered 2) Flexible

- Managers are given power to switch securities- Unit holder can benefit the manager financial

skill.- Problem: depends on the manager’s ability and

integrity.

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Malaysia-Unit Trust

Begins in 1959 Malaysian Unit Trust managed by

Malaysian Unit Trust Limited, established in August 1959 by a group of Australian investors

Asia Unit Trust Berhad Examples-ASN April 20th 1981 Indians-Amanah Saham Dana Permata

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SECURITIES COMMISSION ACT 1993 Regulatory developments-March 1st

1993 One-step regulatory agency Greater scope to develop unit trust,

while ensuring protection for the investors

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means any arrangement made for the purpose or having the effect of providing facilities for the participation of persons as beneficiaries under a trustin profits or income arising from the acquisition, holding, management or disposal of-

(i) securities; (ii) futures contracts; or (iii) any other property;

unit trust schemeunit trust scheme

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in relation to a unit trust scheme or prescribed investment scheme,

means any right or interest therein by whatever name called

and includes any sub-unit thereof

unitunit

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unit holder

means the unit holder of a unit trust scheme or prescribed investment scheme, as the case may be

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WHAT IS UNIT TRUST

Unit trusts are collective investment schemes that allow investors to pool their money together in a fund.

managed by a professional fund manager ,who will buy variety of different holdings.

This spreads the investment and results in lower dealing costs.

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Unit trusts are collective funds which allow private investors to pool

their money in a single fund, getting the benefit of professional fund

management, and reducing their risk

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So What is the definition?

Collective scheme investment Trust fund Any individual purchasers the units Pool the resources with those of other

investors Fund manager must invest in a variety or

diversified types of investment

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WHY UNIT TRUSTInterested to invest in share markets rather than

saving in the bankFeel better protected against the ravages of inflation investment is smallCollectively can spread their investment across the

market – wider portfolio-diversification of the scheme’s investment.Low riskLack of experience, no confidenceLow tax

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Who is Fund manager

A fund Manager hired by the Financial Services Company, or Banks,

Who will manage the investments collectively on behalf of a number of investors

supervised and monitored by the financial services company

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Types of Unit Trust

Two types:- Fixed Unit Trust- non-authorised unit trust, the

categories which the managers are permitted to acquire are rigidly defined in the trust document- land

Managed Unit Trust- flexible/ authorised unit trust- grants the managers authorisation to acquire an almost unlimited power of investment.

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How does it work

A buys units from a Affin Bank or HL A buys units from a Affin Bank or HL Bank Bank

The Bank takes subscriptions from A The Bank takes subscriptions from A and other individual investors, and other individual investors, B,C,D,E B,C,D,E

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How it works

A and other purchasers are allocated units in the trust assets in proportion to the sums which they have contributed.

The subscriptions are pooled and used to purchase shares or to make other investments.

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Duration? Withdrawal?

A may invest / subscribe for whatever duration A will be receiving annual profits A may withdraw from the unit trust by being

paid back a sum which represents the proceeds of his initial investment plus profit.

New investors will buy into the unit trust at a price which reflects the current value of units

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Is Unit a Trust?

It is a form of equitable ownership Fund-purchase of investments in the

name of the fund trustee Investments being held upon trust for

the subscribers

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The fund manager will do the investment The fund manager and the fund trustee

make an annual charge for the administration of the investment fund

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3 Certainties

Knight v Knight-The rule of 3 Certainties does it apply?

Certainty of Intention Certainty of SM Certainty of Object Answer : Yes

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Relationship

purchaser/ Beneficiary Trust Company-Trustee Fund Manager- The Investor/ Settlor There is a trust deed between the

Trustee and the Fund Manager Fiduciary Relationship between Trust

Company and Fund Manager.

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Responsibilities

The trustee –custodian –passive trustee Little role to be played-maintenance-

passive Relying on the good faith of the manager The Fund manager-plays an active role

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Islamic Unit Trust The Trustee The Fund Manager The Syariah Adviser Includes : The unit holders Capital-fund Subject matter of the business-the investment activities Profit the offer the acceptance