4.4 Cooling-Off Rights, Repurchase of Units, Suspension and Switching
Key Takeaways
The cooling-off period must be at least six business days, starting from the date the Scheme Provider receives the application.
Under the current UTF and PRS Guidelines, the cooling-off refund is the lower of the original unit price and the market price when the right is exercised, plus the charges imposed on purchase.
The cooling-off right is not given to staff of the Scheme Provider, persons registered to deal in unit trusts or PRS, or contributions made by an employer on an employee's behalf.
Repurchase proceeds must be paid within seven business days of receiving the request, apart from limited exceptions disclosed in the prospectus.
A suspension of dealing must normally end within 21 days, and a Trustee that suspends dealing on its own accord must immediately call a unit holders' meeting.
The Cooling-Off Right
The cooling-off right protects an investor who bought without fully understanding the scheme, or who was misled, by allowing them to reconsider the purchase. It must be disclosed in the UTS prospectus and PRS disclosure document.
Who gets it
| Gets the right | Does not get the right |
|---|---|
| An individual investing with a particular Management Company (or in a PRS) for the first time | Staff of that Scheme Provider |
| A person registered to deal in unit trusts or PRS (Consultants) | |
| Corporations and institutions (the right is for individuals) | |
| Employer contributions to a PRS on behalf of employees | |
| A PRS member who has already used the right (it does not apply to later contributions, even with another provider) |
How long
The cooling-off period must be not fewer than six business days, counted from the date the Scheme Provider receives the application.
Illustration from the study guide: the application money is banked on Monday (Day 1). With business days Monday to Friday and no holidays, the last day the provider must receive the cooling-off request is the following Monday (Day 6). Providers' procedures can differ, so Consultants should know their provider's policy.
How much is refunded
| Source | Refund rule |
|---|---|
| Current UTF Guidelines (R7-2024, paras 9.05–9.08) and PRS Guidelines (R7-2024, paras 11.08–11.09) | The lower of the original price and the market price at the point of cooling-off, plus the charges imposed on the day of purchase. If the market price is higher, the provider may pay the excess from its own money, not the fund. Refund in cash within 7 business days (for PRS, within 7 business days of receiving the PPA's authorisation) |
| FIMM FCE Study Guide (2025) wording | NAV per unit on the day the units were first purchased, plus the sales charge per unit originally imposed |
Important
The SC's current rule protects the fund: an investor who exercises the right after prices fall receives the lower market price plus the sales charge back, not the original price. If an exam question repeats the study guide's wording, recognise it; in practice, apply the current guidelines.
Worked example (current rules): Puan Siti invests RM10,300, paying a 3% sales charge (RM300) and buying 10,000 units at RM1.00. Three business days later she exercises her cooling-off right when the price is RM0.96. Refund = 10,000 × RM0.96 + RM300 = RM9,900. Had the price risen to RM1.05, she would receive 10,000 × RM1.00 + RM300 = RM10,300, and the provider may choose to pay the RM500 excess from its own funds.
Repurchase of Units
Investors may sell (or, for PRS, withdraw within the PRS rules) at any time, even though schemes are meant for the medium to long term. PRS members must know that pre-retirement withdrawals are generally subject to a tax penalty, with exemptions such as housing and healthcare (Chapter 7B).
| Step | Detail |
|---|---|
| Request | The investor completes the provider's repurchase request form and a payment instruction (bank credit, cheque or, with some providers, telegraphic transfer) |
| Price | The provider must repurchase at the prevailing price once it receives the request |
| Payment | Proceeds paid as soon as possible and within 7 business days of the request |
| Liquidity | The provider keeps enough cash or liquid assets, cancels the units and uses the cash paid by the Trustee |
The current UTF Guidelines allow a longer disclosed payment period in limited cases: feeder funds (payment within five business days of receiving the target fund's proceeds), funds whose NAV needs currency conversion, and funds using liquidity risk management tools.
Suspension of Dealing
If a fund's assets cannot be fairly valued (for example because a market is closed), it would be unfair to price units, so dealing may be suspended:
| Rule | Current UTF Guidelines (R7-2024) |
|---|---|
| Who may suspend | The Management Company, in consultation with the Trustee, in exceptional circumstances with good and sufficient reason |
| Informing investors | All unit holders must be told promptly |
| Maximum period | Cease as soon as circumstances allow and within 21 days; extendable if the Trustee agrees it is in unit holders' interests, with weekly Trustee review |
| Trustee acting alone | A Trustee may suspend on its own accord but must immediately call a unit holders' meeting |
The study guide describes the Trustee suspending dealing for up to 21 days, after which investors' consent through a meeting is needed, and the Trustee notifying the SC of the suspension and when it is lifted. Suspensions are rare and exist to protect investors.
Switching
A switch moves money from one fund to another fund of the same Scheme Provider: a repurchase from the first fund whose proceeds become the application money for the second. Points to know:
- Providers often reduce or waive fees on switches, which can make a switch good value.
- Sales charges can still apply, for example when switching from a no-load fund into a loaded fund. Investors must be told the charges.
- Switching helps rebalance a portfolio when markets or personal circumstances change.
- The FIMM Code of Ethics requires Distributors to use any free switching options before charging switching fees, and prohibits switching an investor merely to earn commission (Chapter 5).
An investor's application is received by the Scheme Provider on a Monday. Assuming no public holidays, what is the last day of the minimum cooling-off period?
The following Wednesday
The following Monday
Fourteen days later
The following Friday
Under the current UTF Guidelines, a first-time investor exercises the cooling-off right after the unit price has fallen below the purchase price. What is refunded?
The original purchase price plus the sales charge
The lower market price plus the charges paid on purchase
The original purchase price only, without the sales charge refunded
The market price only, with the sales charge forfeited
Which investor is NOT entitled to a cooling-off right?
A registered UTS Consultant buying units as a personal investment
A first-time individual PRS contributor
A retiree investing with a UTMC for the first time
A first-time individual investor buying through a bank IUTA
Sections you finish are checked off in the contents.