A unit trust fund is a professionally managed, collective investment scheme that pools unit holders’ moneys and invests it towards a specific goal as declared by the investment objective of the scheme. Such a scheme usually aims to provide above-average returns in the form of income distribution and capital growth with reasonable risks, to medium-to-long term investors through investing in a broadly diversified portfolio of stocks and bonds.

Unit trusts are, therefore, long term investment vehicles most suited for investors who can tolerate volatile short-term fluctuations in prices in pursuit of the potential for long-term capital growth, which is associated with riskier equity investments.

In view of its long-term capital growth nature, unit trust investments should be accorded a certain proportion in the total makeup of an investor’s portfolio of personal assets for the possible upsides that it provides on returns.

A unit trust scheme may be illustrated as tripartite relationship between the manager, the independent trustee and unit holders (as shown in the diagram below) governed by a legally binding Deed registered with the Securities Commission Malaysia. The Securities Commission Malaysia regulates the industry as well as the operations and administration of unit trust schemes through the Capital Markets and Services Act 2007, and the Guidelines on Unit Trust Funds.

Unit Trust Tripartite Concept

The deed spells out in detail the manner in which the scheme is to be administered, the valuation and pricing of units, the keeping of proper accounts and records, the collection and distribution of income, the rights of unit holders, the duties and responsibilities of the manager and independent trustee with regard to the operations of the scheme, and the protection of unit holders' interest.

The manager is obliged under the Deed, Capital Markets and Services Act 2007 and Guidelines on Unit Trust Funds to administer the fund(s)/scheme(s) in an efficient and proper manner that will ensure high standards of integrity and fair dealing in managing the schemes to the exclusive interest of unit holders and investors, to exercise due care, skill and diligence as well as effectively employ the resources and procedures necessary for the proper performance of the scheme(s).

The independent trustee is appointed for the unit holders and acts as the custodian for all the assets of the scheme. The independent trustee, therefore, must act to ensure that the manager adheres strictly to the provisions of the deed; particularly with regard to the creation and cancellation of units, the exercise of investment powers of the fund, collection and distribution of income, proper record keeping of administrative, investment and unit holders' transactions, and in upholding unit holders' interest.