What is Unit Trust?

A unit trust fund is a collective investment scheme, which pools the savings of investors with similar investment objectives in a special "trust" fund managed by professional fund managers. The pooled monies in the unit trust fund will then be invested in a diversified portfolio of securities and other assets in accordance with the unit trust fund's investment objectives and as permitted under the Securities Commission's (SC) Guidelines on Unit Trust Funds.

Particular advantages of unit trusts over the pooled investments include :

· The provision of an independent trustee to hold the trust's assets on behalf of unitholders and to watch over their interests on an on-going basis.

· The deed and prospectus are scrutinised by government authorities, prior to an offer of units being made to the general public. The managers and trustee are themselves approved by the regulators.

· A buy back provision or covenant in each deed which requires the manager to redeem an investor's units within specified time limits at a price determined in accordance with the deed.
Provisions in the deed under which the manager and trustee are in a fiduciary position in relation to the trust (i.e. they can only profit in ways laid down under the deed). The investor can determine in advance what costs and charges they will be required to pay to join and stay in the trust.

The investment scheme of a unit trust fund can be illustrated as a tripartite relationship between the manager, the trustee and the unitholders.

The manager is responsible for the management and operations of the unit trust fund whilst the trustee holds all the assets of the unit trust fund. The obligations and rights of each of the three parties are specified in the Deed, (a legal document entered into between the manager and the trustee, and registered with the SC). The Deed regulates the duties and responsibilities of the manager and the trustee with regard to the operations of the trust fund and protects the unitholders' interests.

In brief, unit trust is constituted through a document known as a deed which brings together and binds the various parties to the deed :
· The trustee, who holds the assets of the trusts on behalf of the unitholders.
· The manager, who is the promoter of the scheme and provides investment and administrative expertise and markets units to the public
· The unitholders who provide the funds for investment and expect to receive the benefits derived from the investment. The effect of dividing the beneficiaries' interest in the trust into units is that their interest is quantified into discrete portions.