Using the study guide's explanation that the 67% margin of finance lets an investor borrow up to twice her own deposit, how much can an investor with RM15,000 of her own money borrow to buy UTS units?

RM30,000. With a 67% cap on the margin of finance, the investor can borrow up to twice her own deposit. RM15,000 of her own money supports a loan of up to RM30,000, making RM45,000 invested in total.

What happens to the original signed Unit Trust Loan Financing Risk Disclosure Statement?

The UTMC files it; the investor gets a copy. The UTF Guidelines require the UTMC to obtain the signed statement; the original is filed by the UTMC for record and inspection and a duplicate is forwarded to the investor.

Which product can NOT be purchased with loan financing?

A PRS fund. The study guide states that loan financing is not allowed for the purchase of PRS, while UTS may be bought with borrowed funds subject to the SC's safeguards.

Financing the Purchase of UTS: Process, Safe | Free Guide 2026

Why Financing Is Treated with Caution

Some investors borrow to buy UTS units, hoping returns will exceed the borrowing cost. The study guide highlights two dangers:

Leverage magnifies losses as well as gains.
Consultants may be motivated by the extra commission on a bigger, loan-financed purchase.

Loan financing is not allowed for PRS.

The Process Step by Step

Step	What happens
1. Loan application	Before the unit application goes to the UTMC, the investor applies for a loan. The lender assesses creditworthiness and the security (usually the units) and decides how much it will lend against them.
2. Approval and payment	Most lenders pay the loan directly to the UTMC, not to the investor, so the money is used as stated. The borrower signs the loan contract (interest rate, repayment terms).
3. Units issued	The UTMC processes the application; the lender receives the unit certificate or confirmation that its interest is protected and holds it as security. The investor receives a statement of units bought and cost.
4. Margin calls	If the loan-to-valuation ratio worsens (for example in falling markets), the lender may require a margin call: a cash payment or extra collateral.
5. Repurchase	When units are sold, proceeds usually go directly to the lender; after the loan is repaid, the balance goes to the investor.

The SC's Safeguards

Two separate transactions

The Guidelines on Marketing and Distribution of Unit Trust Funds require UTMCs to ensure Consultants do not, directly or indirectly, encourage the sale of units through loans. The sale of units and the loan are two totally separate transactions, so promotional materials containing projected returns based on a loan scheme are not allowed.

Full and frank disclosure

Consultants must give factual information only, omit no material fact, and clearly explain the risks of leverage so the investor understands them before borrowing.

The Unit Trust Loan Financing Risk Disclosure Statement

Requirement	Detail
Signature	The investor signs the statement, acknowledging that the risks of borrowing to buy UTS have been explained and understood
Original	Attached to the application and filed by the UTMC for record and inspection
Copy	A duplicate is forwarded to the investor
Lender queries	The statement encourages the borrower to ask the lender about anything unclear
Protection	It also protects the UTMC and Consultant if returns disappoint or the investor struggles to repay for reasons outside their control

The statement's heading warns: "Investing in a unit trust fund with borrowed money is riskier than investing with your own savings." Its four risks:

The higher the margin of finance, the greater the potential loss as well as gain.
Variable-rate repayments become more onerous if interest rates rise (not applicable to a fixed rate for a fixed term).
Margin calls may require extra collateral or payments on top of instalments; failure can lead to units being force-sold.
Returns are not guaranteed and not earned evenly; selling at the wrong time can mean a loss even if the investment did well before.

The 67% margin of finance

The UTF Guidelines (paragraph 8.21) cap the margin of finance at 67% of the amount invested, and UTMCs must ensure it is not breached. The study guide explains this as letting an investor borrow up to twice their own deposit:

\frac{\text{Loan}}{\text{Total amount invested}} \le 67\%

Study guide illustration	Own money	Loan	Total invested	Loan share
Chapter 4: deposit-based	RM10,000	RM20,000	RM30,000	66.67%
Chapter 7A: investment-based	RM33,000	RM67,000	RM100,000	67%

Both examples sit within the cap. In exam questions phrased as "twice the deposit", use the 2:1 ratio; in questions phrased as a percentage of the amount invested, use 67%.

The Ethics Link

The FIMM Code of Ethics prohibits Distributors and Consultants from encouraging investors to invest through loan financing, and requires them to explain the risks of investing through loan financing when describing a scheme's features (Chapter 5). Chapter 7A covers typical loan terms and the risks of borrowing in more depth, and the study guide suggests that regular savings may be a more prudent alternative.

Applying It

A Consultant tells a client: "Borrow RM60,000, add RM30,000 of your own and you will make 12% a year on RM90,000 instead of RM30,000." Three problems:

It encourages loan financing, which the Code of Ethics prohibits.
It projects returns based on a loan scheme, which promotional material must not do.
The loan would be 66.7% of RM90,000, so it fits the 67% cap, but the client has not been told the risks or signed the risk disclosure statement.

FIMM Combined Examination

4.5 Financing the Purchase of UTS: Process, Safeguards and the Risk Disclosure Statement

Key Takeaways