Professional Documents
Culture Documents
Unit Trust
Unit Trust
The Unit
Trust Holder
•Individual,
Group,
Company
THE MANAGEMENT COMPANY
Advantages
•High liquidity
•Affordability (anyone can have it)
•Has many choices (equity fund, growth
fund) based on investors’ level of risks
•Lower risk because it is highly diversified
•Easy to reedeem
Disadvantages
•Returns are moderate to low compared to
other instruments
•High fees charge
•Investors have no choice in selecting
securities in the funds
• Long term investment (take longer time to
enjoy the returns)
ATTRACTIONS OF MUTUAL FUNDS
Portfolio Diversification
Professional Ability to invest small
•Owning numerous management amounts
securities reduces risk
Convenience
Service
•Easy to buy and sell; high
•Automatic reinvestment of liquidity
dividends
•Fund has a recordkeeping
•Withdrawal plans
•Easy to track prices
DRAWBACKS OF MUTUAL FUNDS
Buy and sell Investors buy and sell shares directly Sell only the initial offering; Subsequent
with the mutual fund company without trades are done in a secondary market,
a secondary market similar to the common stock market
Load Fund: a mutual fund that charges a commission when shares are bought
No-load Fund: a mutual fund that does not charge a commission when shares
are bought
•Typically sold directly to investor by mutual fund
•Cost savings tend to give investors a head start in achieving superior rates
of return
Low-load Fund: a mutual fund that charges a small commission (2% to 3%) when
shares are bought
•This fee is paid by all types of funds (load vs. no-load; open-end vs. closed-end)
•Fee is charged annually on average net assets
Administrative costs: the normal costs of doing business, such as trading expenses
•Mutual funds company do not pay taxes if income and capital gains are passed
on to shareholders
•Shareholders are taxed on their share of income and capital gains annually
REAL ESTATE INVESTMENT
TRUSTS (REIT)
No Types No Types
1. Growth Fund 7. Bond Funds
2. Aggressive Growth Fund 8. Index Funds
3. Value Fund 9. Sector Funds
4. Equity Income Fund 10. Socially Responsible Funds
5. Balanced Fund 11. Asset Allocation Funds
6. Growth and Income Fund 12. International Funds
TYPES OF MUTUAL FUNDS
Aggressive
Growth Fund Goal Investment Risk
(3)
Goal Investment Risk
Value Fund
• Seeks stocks that • Focus is on intrinsic • Less risky
are undervalued in value of stocks and • Investments for
the market requires extensive relatively
fundamental conservative
analysis investors looking for
• Invest in stocks with moderate growth
low P/E ratios, high
dividend yields and
promising futures
• Looks for
undiscovered
companies with
potential for future
growth
TYPES OF MUTUAL FUNDS
(6)
Goal Investment Risk
Growth &
Income Fund
• Seeks both long- • Focus is on long- • Moderate risk
term growth and term capital investments for
current income, appreciation with investors who can
with primary some high income tolerate moderate
emphasis on capital to provide limited price volatility
gains stability
• Invest in blend of
commons stocks
and fixed-income
securities, with up
to 90% in common
stocks
TYPES OF MUTUAL FUNDS
(9)
Goal Investment Risk
Sector Fund
• Produce capital • Investments are • Considered
gains restricted to a speculative
particular segment because limited
of the market diversification can
• Investments are increase investment
concentrated in risks
one specific
industry sector
TYPES OF MUTUAL FUNDS
•Unrealized
capital gains
(paper profits):
capital gain that
has not been
realized since
fund’s holdings
have not been
sold
NET ASSET VALUE (NAV)
If the total assets of unit trust fund amounted to RM510 million, the liabilities
amounted to RM380 million, and other investments amounted RM40 million:
i. Calculate the net asset value (NAV) per unit of the unit trust if the number
of units in circulation is 200 million.
ii. If in the next financial year, the assets increased by 10%, the liabilities also
increased by 5%, and no change in other investments and number of units,
determine the new NAV per unit.
CALCULATING RETURN: HOLDING
PERIOD RETURN
Returns include
distributions of Best for one year
dividends, Return for specific returns since does
distributions of holding period not use present
capital gains, or NAV value
appreciation
At this time last year, a unit trust fund had an NAV of RM1.32 per unit. Over the
past year, the fund paid dividends of 6 cents per unit and had a capital gains
distribution of 10 cents per unit. What is the holding period return assuming that
the current NAV is RM1.38?