The term “unit trust fund” is no longer an exclusive term understood only by investors or those in the banking industry. This is because the current financial landscape in Malaysia has seen many investors and members of the public interested in unit trust funds as an investment. Often seen as a relatively medium risk form of medium to long-term investment, many investors also put their money into a unit trust fund to diversify their portfolio.
In this article, you will be able to identify the key points of the prospectus and therefore choose a unit trust fund product that best suits your investment objectives and risk profile.
What is a prospectus?
A prospectus is the most important document that you need to acquire before committing yourself to a unit trust fund. It serves as a roadmap for you to know what you can expect from the fund. The prospectus will usually contain vital information such as investment objective, investment strategies, risk factors, financial performance (where applicable), fees and charges and others.
Why should you read the prospectus?
There are hundreds of unit trust funds being offered in the market today. As an investor, the basic way of obtaining information regarding the fund is by reading the prospectus. After reading the prospectus, a potential investor can then make an informed decision to choose a fund that matches their investment objectives and risk tolerance. In addition, you will be far better protected and informed after reading the prospectus rather than by simply relying on flyers, advertisements, seminars or word of mouth.
Where can you obtain a prospectus?
You can start by locating a distributor for unit trust funds. According to the Federation of Investment Managers Malaysia (FIMM) there are four types of distributors for unit trust funds. They are:
• Institutional Unit Trust Advisers (IUTA) – consists of an institution, organisation or a corporation that is licensed by the Securities Commission for the purpose of carrying out dealing in securities restricted to unit trusts and duly registered with the FIMM to market and distribute unit trust funds.
• Unit Trust Management Companies (UTMC) – consists of companies that are approved to issue or offer for purchase units for a Unit Trust Scheme, in accordance with the Capital Markets and Services Act 2007.
• Corporate Unit Trust Advisers (CUTA) – an institution, organisation or a corporation that is licensed by the Securities Commission for the purpose of carrying out the regulated activities of financial planning and dealing in securities restricted to unit trusts and is duly registered with the FIMM to market and distribute unit trust funds.
• Unit Trust Consultants (UTC) – any individual who is duly registered with the FIMM to market and distribute unit trust funds.
Alternatively, most unit trust fund product websites also allow you to download a digital copy of their prospectus.
In general, the information in a prospectus is usually only valid for one year. So, always try to get a copy of the most recent prospectus for the unit trust fund you are interested in.
Guide to reading a prospectus
Here are some of the key elements that you need to be mindful of when reading a prospectus:
• Investment objective
While some funds are aimed at providing a steady stream of income, others are mainly focused on gaining long-term capital growth, or a mix between the two. Bear in mind that unit trust funds are long-term investments, so take this into consideration when identifying which fund’s investment objective would help to achieve your own investment objective.
• Investment strategy
This tells you how the fund managers are going to achieve the stated objective; the approach that they are going to take and how the asset allocation is going to be in terms of exposure to various investment vehicles and sector selections. For example, a unit trust fund offered by Company A may invest in equities and futures contracts only while Company B may invest in corporate bonds, money markets instruments and deposits. By reading the prospectus, you can then determine which investment strategy fits your investment objectives better.