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Gentle Reminders
Session Duration: 1 full day Required to sign in TWICE. Check ame & IC o. Failure to sign will result in non-attendance.
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Gentle Reminders
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PROGRAMME OUTLINE
Chapter 1 : Understanding Unit Trusts Chapter 2 : Regulation of The Unit Trust Industry Chapter 3 : Servicing Clients and Marketing Unit Trusts Chapter 4 : Industry Code of Ethics and Standards of Professional Conduct Chapter 5 : Personal Financial Planning Chapter 6 : Operations of Syariah-Based UTS
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New Abbreviations
CUTA : Corporate Unit Trust Advisers CMSA : Capital Markets and Services Act, 2007 5
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Chapter 1 Page 2
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Benefits Of UTS
Diversification Ready access to funds / liquidity Professional management Investment exposure Lower investment costs
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Disadvantages Of UTS
Risk Loss of Control Fees and Charges Opportunity Cost
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Lump Sum
Method of Investing
Reinvestment of income
Regular Savings
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Leveraging / Gearing
Max loan-to-valuation ratio is 67% UTC must not directly/ indirectly encourage sales through loans Unit Trust Loan Financing Risk Disclosure Statement Borrowers must be within 18-55 years of age
Formula 1:Chapter 1(Page 1)
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Risks Of Borrowing
Interest rate fluctuations Default in repayment of loan Premature repayment of loan Margin call
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Money Possible Pooled from Distributions Investors Safeguard s the Assets of the UTS Administers the Operations of the UTS Invests
TRUSTEE
UTS
UTMC
AUTHORIZED I VESTME T
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Services the unit holders Distributes income, calculates unit price Provides repurchase facilities Maintains registration of unitholders
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Chapter 1 Page 10
Invest & responsible for fees that earned by UTMC & trustee
Unit Holders
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DEED
Rights & obligations of UTMC Rights & duties of Trustee Rights of Unitholders Maximum fees payable Authorised investment Valuation of units Outline way in which changes can be made to the deed
Chapter 1 Page 10
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TYPES OF UTS
Unlisted/Open-End Funds
1. Units are not quoted on a stock exchange 2. Unit prices are computed based on the underlying net asset value of the fund 3. Prices remain unchanged within the same trading day 4. Size of fund would increase with the creation of units and decrease with the cancellation of units 5. Transacted directly with UTMC
Listed/Closed-End Funds
1. Units quoted and traded on stock exchange 2. Prices determined by market forces of demand and supply 3. Prices fluctuate throughout the day and from time to time 4. Size of fund remains unchanged until the next public issue 5. Investors can only sell their units through the exchange
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CLASSIFICATION OF UTS
EQUITY FIXED INCOME MONEY MARKET REIT ETF BALANCED SYARIAH GOVERNMENTSPONSORED
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EQUITY UTS
Aggressive Growth Funds Index Fund Income fund International fund
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government securities & MM instruments Generally provide regular income with less emphasis on capital growth Usually more secure Usually held as portfolio diversification
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Chapter 1 Page 15
BALANCED UTS
Generally has a portfolio comprising equities, fixed income securities, cash & property Exhibit lower volatility than most single asset class of UTS Prospect of returns higher than money market UTS, saving accounts and fixed deposits
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SYARIAH UTS
Catered for Syariah concerned investors Invest in a portfolio of halal companies, Islamic Debt Securities & bonds or other securities in accordance of Syariah principle Returns will also avoid the incidence of riba or usury interest
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Equity invested - may have fluctuating and variable unit price Balanced basis - normally have fixed RM1.00 unit price
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INVESTMENT-LINKED FUNDS
Promoted by life insurance companies Investor acquires life insurance policy, which represents no. of units in investment pool Single premium and regular premium Not subject to scrutiny by SC or monitored by Trustee
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PROSPECTUS
Legal document containing legal accounting and investment terms No sales can be made without a prospectus Each UTS must provide prospectus Updated every 12 months Purpose provide necessary information make an informed investment decision
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Chapter 1 Page 30
Annual Management Fee Average around 1.5% p.a. to cover costs managing UTS Trustee Fee Min rate of 0.08% p.a. for Trustee operating expenses UTS expenses Other expenses directly related & necessary to the operation of UTS (Buy & Sell UTS Assets, Tax, Auditor, Legal, etc) Management Expense Ratio (MER) Measure of operating costs of UTS borne annually by unitholders on each unit held
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Chapter 1 Page 31
RM3,122,250
MER =
= 1.33%
Formula 3:Chapter 1(Page 1)
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MEASURING PERFORMANCE
Raw return Compounded annual return UTS Performance Table Total Returns over various time periods Rankings & Quartiles Funds under management Benchmark Risk measures Consistency Qualitative Factors
Formula 4&5:Chapter 1(Page 2)
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UNIT PRICING
2 set of unit prices: Selling & Repurchase price
W.e.f. 1 July 2007, regime for pricing of UTS has changed from dual-pricing to single-pricing. All Buying & selling of units will be transacted based on SINGLE PRICING, i.e. NAV. Creation & Cancellation price
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UNIT PRICING
Calculation of NAV comprises of: Investments at market value
Liquidity (cash available for investment) Transaction Cost Factor (TCF) / Expense Allowance Creation and Cancellation Price Creation Price = NAV + TCF Cancellation Price = NAV - TCF
Formula 6:Chapter 1(Page 2)
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UNIT PRICING
Forward Pricing Transaction done based on the price
Chapter 1 Page 43
which will be determined at the end of the day Historic Pricing Transaction done based on the price which was determined previous day
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A split is the division of a single unit in UTS into several units Distributions Payments made to unitholders out of the accounting income of UTS To be paid or reinvested
Formula 7&8:Chapter 1(Page 2&3)
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Chapter 2 Page 1
Chapter 2 Page 2
Regulatory Structure
The Securities Commission (SC)
- Securities Commission Act, 1993 - Capital Markets and Services Act, 2007 (CMSA) Covering UTMC, UTS, IUTA, CUTA, UTC and fund managers
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Regulatory Structure
Other Government Regulators
Companies Commission of Malaysia Bank Negara Malaysia Bursa Malaysia Bursa Malaysia Securities Clearing Sdn. Bhd
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Regulatory Structure
FMUTM
Registering body for all UT distributors and management companies Provides self-regulation for the unit trust industry Formulates sound & ethical business practices Provides investor protection
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Regulatory Structure
Laws & Regulations
Capital Market & Services Act 2007 Securities Commission Act 1993 Guidelines issued by the SC Guidelines issued by the FMUTM
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Regulatory Structure
Capital Market & Services Act 2007
Introduces a single licensing regime instead of multiple separate licenses Allow capital market intermediaries to hold one license to carry on any one or more regulated activities Any person carrying out any regulated activity such as dealing in UT must be i) a holder of CMSL or ii) a registered person
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Regulatory Structure
Regulated activity:
Dealing in securities (restricted dealing in UT), fund management, investment advice & financial planning
Chapter 2 Page 3
Regulatory Structure
Guidelines issued by the SC
Guidelines on UT Funds Prospectus Guidelines for Collective Investment Schemes Guidelines on Marketing & Distribution of UT Funds Guidelines on UT Advertisements and Promotional Materials
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Regulatory Structure
Guidelines issued by the FMUTM
Chapter 2 Page 4
Guidelines for Registration of Institutional Advisers for the Marketing & Distribution of Unit Trust (IUTA) Guidelines for Registration of Corporate Advisers for the Marketing & Distribution of Unit Trust (CUTA) By-laws Relating To The Procedure For Disciplinary Proceedings (Chapter 4) Code of Ethics and Standards of Professional Conduct for Unit Trust Industry (Chapter 4) Investment Management Standards
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To safeguard unitholders interest Manage & administer in accordance with the deed, guidelines and laws Keep proper records of a UTS Provide UTS reports Interim & Annual Call for unitholders meeting Keep register of unitholders Ensure that information acquired is not improperly used To set up a compliance unit and internal audit unit
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Chapter 2 Page 6
Chapter 2 Page 7
Chapter 2 Page 8
Chapter 2 Page 9
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An IUTA & CUTA must ensure that a minimum of 2 UTCs are stationed at each Distribution Point at all times.
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UTMC, IUTA & CUTA are responsible for ensuring that all person involved in the marketing and distribution of UT are UTC registered with and authorized by the FMUTM Eligibility Requirement for an Authorized Person who is an Individual - Refer to Appendix 1 (page 2-22) Authorization Card by FMUTM Agency Structure
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Chapter 2 Page 24
Chapter 2 Page 24
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Chapter 3 Page 6
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REPURCHASE OF UNITS
any time Within 10 CALENDAR DAYS Repurchase Notice Documents Repurchase Request Form Complete payment instruction
SWITCH
UTS A
UTS B
Chapter 3 Page 9
REPORTING TO UNITHOLDERS
On Acquisition of Units During Period Units in UTS Are Held INTERIM REPORT ANNUAL REPORT On Disposal of Units
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REPORTING TO UNITHOLDERS
ANNUAL REPORT Key performance data Managers Report Trustees Report Financial Statement of UTS and Auditors Report
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REPORTING TO UNITHOLDERS
INTERIM REPORT Minimum contents: Managers Report Trustee Report, and Financial Statement should be endorsed by Directors Need not be audited
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INCOME DISTRIBUTION
Buying Distributions- buy a distribution by acquiring units just before ex-D date Distribution Equalisation a portion of money set aside from investments to equalize unitholders distribution income
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EPF TRANSFERS
W.E.F. 1 January 2007, A/C 3 no longer exists. All existing savings previously accumulated in A/C 3 are merged into A/C 2. Re-shuffled as follows:
A/C 1 Retirement (70%) A/C 2 Housing loan, education, pre-retirement withdrawal at age 50 and/or medical expenses (30%)
Formula 3:Chapter 3(Page 4)
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ADVANTAGES INVESTING IN UT
Diversification Professional Fund Management Liquidity Ease of Purchase
DIVERSIFICATION
Generally invested in a wide range of securities Diversifies across asset classes e.g. shares, fixed income securities, property & cash
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LIQUIDITY
A measurement of how long it takes to sell investment UTMC are obliged to repurchase units Normally within 10 days
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EASE OF PURCHASE
Investors can easily buy units Only call UTMC, IUTA or UTC to obtain a prospectus and all information needed to make investment decision
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RISKS INVESTING IN UT
Investment Risk e.g. volatility Risk of UTMC go out of business Risk of changes in legislation Risk of changing fees and investment policy Financing/loan/borrowing risk Returns are not guaranteed Managers/management risk Risk of non-compliance
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RISKS INVESTING IN UT
Currency risk Country risk Market risk Liquidity risk Credit/default risk Inflation risk Interest rate risk
Chapter 6 Page 10
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COMPLIANCE
Chapter 4 Page 3
A form of control against risks & consequences of breeching law or other internal/external obligations Benefits to UTC from compliance: reduction in client complaints reduced risk of litigation by clients an enhanced reputation opportunity for UTC to update knowledge assurance on continuing career
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ETHICS
FMUTM Code :
Part A Code of Conduct for Ordinary Members of FMUTM Part B Code of Conduct for organisations registered as IUTA Part C Code of Conduct for persons registered as UTC
2 sections:
A code of Ethics Standard of Professional Conduct
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UTC
CODE OF ETHICS
Honesty, Dignity & Integrity Fair Dealing Good Faith Competence Confidentiality Professionalism Acting with due care, skill & diligence Prompt, efficient and continuous service
Chapter 4 Page 7
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UTC
STANDARD OF PROFESSIONAL CONDUCT Compliance with laws use of authorisation card appropriate designation or title marketing and distribution with prospectus adequate explanation advertisements and promotional materials appointment of qualified persons duty to supervise and monitor keeping abreast with industry disciplinary proceedings
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Complaint normally handled by UTMC or IUTA, but may be referred to FMUTM for disciplinary proceedings Complaint to FMUTM- must be in writing
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Financial Planning
Chapter 5 Page 1
A process of meeting an individuals life goals within a certain time frame through the proper management of the individuals present and future finances.
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Ensure adequate income in times of need Provide roadmap of financial objective Improve present & future lifestyles Peace of mind
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Chapter 5 Page 4
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Advice use of credit risks, costs involved, investment strategies such as DCAP & etc. Discuss & recommend investment classes or specific investments.
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CLIENT TYPES
Stage 1: Approximately 21-30 years Stage 2: Approximately 31-44 years Stage 3: Approximately 45-60 years Stage 4: Approximately Age 61 years and above
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Differences
Financial planner need to have a IA license. Financial planner uses the financial planning skills.
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Actual Return after tax Inflation Return after tax (d) % Investment % (c) & inflation % return % (b) =(b)-[(a)x(b)] =(c) (d)
5.0 10.0 12.0 4.5 9.0 10.8 4.8 -0.3 +4.2 +6.0
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Chapter 5 Page 12
A house costs RM150,000 today, how much will it costs for, say,
4%
RM 222,037
4.8%
RM 239,720
5%
RM 244,334
Chapter 5 Page 12
Rule of 72
72 Given interest rate Years to double given sum of money
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Assume an investor invested RM100,000 in a UTS that has initial entry cost of 7% with an MER of 2% for 5 years and 12% of return every year.
Working Money : RM100K/(1+7%) = RM93,457.94 MER : 2% p.a. Rate of Return : 12% p.a. Effective Rate of Return = 12% - 2% = 10% Compounding Factor For Lump Sum Investment := (1+i)n where i = rate of return n = no. of years Compounding Factor =( 1+10%)5 = (1+0.1)5 =1.6105 = RM93,457.94 x 1.6105 = RM150,514.01
Future Value
Formula 4:Chapter 5(Page 6)
102
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Chapter 6 Page 5
Conventional
Achieve both capital and Income can be derived income growth within from any sources as the scope of Syariah accordance to deed Aligned with the objective of Syariahbased fund Aligned with the objective of conventional fund
Investment strategy
Conventional
Daily operations comply with SC requirement No other restrictions
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Conventional
Deed and prospectus drafted in accordance with the guidelines of the SC No need to include Syariah Committee/ Adviser report in any report
Chapter 6 Page 6
Securities Commission
Regulates Independent of each other
Trustee
Executes
UTMC
Deed
Issues
Syariah Adviser
Chapter 6 Page 7
Unit Holders
Unit Holders
Musyarakah Contract
share among the profit derived or any other agreed profit-sharing ratio.
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Wakalah (agency)
UTMC act on behalf of unitholders to invest and manage UTS
Bai
Contract of sale and purchase between unitholders and UTMC
Chapter 6 Page 7
UT Manager
Trustee
Chapter 6 Page 7
Unit Holders
Trustee
Wakalah (agency)
Trustee acts for and on behalf to be the custodian of the fund Safeguard the interest of unitholders
Investment Portfolio
Chapter 6 Page 8
Excess cash/liquid assets -kept/invested in Syariahbased instruments, i.e. Islamic current account or investment account. Eg.
Syariah-based units/shares of other collective investment schemes Islamic Securities and Corporate Islamic Bonds Government investment issues Islamic Accepted Bills Bank Negara Negotiable Notes
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Consult SC on any ambiguity Act with due care, skill and diligence Responsible for scrutinising the funds compliance report (by compliance officer)
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SC publishes booklet - 6-monthly basis (last Friday of April and October each year) Booklet highlights areas e.g.: newly classified Syariah-compliant securities newly classified Syariah non-compliant securities benchmark determining Syariah status and etc.
Chapter 6 Page 13
Non-halal products or related products manufacturing Conventional insurance entertainment activities that non permissible by Syariah manufacture or sale of tobacco-based products or related products stockbrocking or share trading in Syariah non-compliant securities
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Chapter 6 Page 14
To liquidate when value of securities exceeds original investment cost Capital gain at the time of announcement - can be kept by the investors Capital gain after announcement day should be channeled to charitable bodies Investors are allowed to hold investments if Market Price < Investment cost until dividends received and market value equals original cost
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