2.1 UTS and PRS as Investments: Mechanics, Unit Calculations and How They Compare

Why UTS Exist

The study guide says a UTS "bridges the gap" between low-risk investments such as bank deposits and investments that offer better returns at an acceptable risk. It gives investors with small capital (and high-net-worth investors too) access to a wide range of investments at reasonable cost, and helps them build wealth and beat inflation over the medium to long term.

The trade-off is certainty. In the short run, returns are far less certain than fixed-deposit returns; over the medium to long term (for example more than five years) many UTS can deliver much better returns for an acceptable level of risk.

The Mechanics of Investing in a Scheme

1. Pooling – investors with similar objectives pool their savings in a portfolio managed by professionals.
2. Units – ownership is divided into units. Each unit is a proportionate share of the pool, so the unit price rises and falls with the portfolio.
3. Beneficiaries, not shareholders – investors are not shareholders of the companies the fund holds. They are beneficiaries under a trust set up by the Scheme Provider (UTMC or PRS Provider).
4. Trustee as legal owner – under the deed, the Trustee is the legal owner of all scheme assets and owes a fiduciary duty to act in the unit holders' best interests.
5. No control over management – investors have a beneficial interest but cannot direct day-to-day operations or portfolio decisions.
6. Segregation – assets stay under the Trustee's control whatever form they take (cash, shares, cash again). If the Scheme Provider becomes insolvent, the assets are safe because they are segregated from the provider's own assets.
7. Evidence of ownership – investors subscribe after reading the prospectus or disclosure document and completing an application form, and receive a confirmation statement. Some early investors still hold unit certificates.

Working the Study Guide's Calculations

The study guide's confirmation-statement example uses three formulas.

1. Investment amount when the charge is included in the amount paid

$$\text{Investment Amount} = \frac{\text{Amount Received}}{1 + \text{Charges}} = \frac{\text{RM}50{,}000}{1.055} = \text{RM}47{,}393.36$$

The investor handed over RM50,000; the 5.5% charge is RM2,606.64, and RM47,393.36 is invested.

2. Units purchased

$$\text{Units} = \frac{\text{Investment Amount}}{\text{Unit Price}} = \frac{\text{RM}47{,}393.36}{\text{RM}1.5561} = 30{,}456.50 \text{ units}$$

3. Redemption proceeds

$$\text{Proceeds} = \text{Units Redeemed} \times \text{Unit Price} = 18{,}124.70 \times \text{RM}1.6552 = \text{RM}30{,}000$$

Where the Return Comes From

Returns are a mix of:

• income distributions declared by the Scheme Provider; and
• capital appreciation (or depreciation) reflected in the unit price.

Each unit is entitled to an equal share of both. Schemes range from income funds and capital-growth funds to equity, real estate, fixed income and Shariah-compliant funds.

Investors in schemes are typically people with modest sums who have neither the time nor the inclination to manage a portfolio of shares directly.

UTS vs PRS: Similarities

Both UTS and PRS:

FIMM's practice question asks you to pick all four statements as shared characteristics.

UTS vs PRS: Differences

The mechanics of investing in PRS are generally similar to UTS and the underlying products (funds) are the same, but PRS is governed by a completely different set of rules. One example is the Private Pension Administrator (PPA), approved by the SC to provide efficient administration, industry advocacy and development for PRS.

Chapters 7A and 7B cover these operating features in detail.