Unit Trust

What is Unit Trust?
Unit trusts have grown in popularity in recent years. It's not hard to figure out why. Unit trusts are the small investor's answer to achieving wide investment diversification without having to come out with prohibitive sums of money. And the benefits do not end at that. But first, what is a unit trust? A unit trust fund is an investment scheme (as shown in the diagram below) that pools money from many investors who share the same financial objectives. In exchange for the money, the fund issues units to the investors who are known as unit holders. Unit holders can sell (known as redeeming) their units back to the fund, or buy (and sell) further units.
Managing the fund and the income earned
Mean time the fund is managed by a group of professional managers (known as the unit trust company) who will invest the pooled money in a portfolio of securities such as shares, bonds and money market instruments or other authorised securities to achieve the objectives of the fund. Because of the large sums collected, the fund manager is able to diversify among various investments in such range and diversity that the risks of investing are minimised. On the other hand, the total assets of the fund determine the value of the fund and the price paid by unit holders or the amount received when they redeem their units. The unit trust fund earns income from its varied investments in the form of dividends, interest income and capital gains. This income is then distributed to the unit holders in proportion to the units they hold, in the form of dividends or bonus units.

Protection for unit holder
As a unit holder, our protection within a unit trust is ensured in the way unit trusts are structured. Unit trusts are actually trusts. The protection is enshrined within the unit trust deed which spells out the respective duties, responsibilities and expectations of the three parties in the unit trust who are namely: (a) The unit holders who provide the funds for investing; (b) The unit trust company providing investment, administrative and marketing services; and (c) The trustee company which holds the assets of the trust on behalf of the unit holders. There are three sources of information that we must examine when selecting a fund. These are the fund's prospectus, the trust deed and the financial statements comprising the annual and interim reports which are available for inspection, free of charge, at the premise of the fund manager.
The Regulatory Framework
The unit trust industry is governed mainly by the SC, which was established under the Securities Commission Act 1993. The SC is empowered to require compliance with all legislations and regulations under its ambit, which are, amongst others, the Securities Industry Act 1983, the Securities Commission Act 1993 and the SC’s Guidelines. These securities laws and guidelines have been established to protect the interests of the investing public and to facilitate the orderly development of the unit trust industry.