4.8 Reporting to Investors: Confirmations, Statements, and Semi-Annual and Annual Reports
Key Takeaways
On purchase, investors receive confirmation of the amount received, the units allotted and the NAV per unit, and the initial service charge in both percentage and ringgit terms.
Each scheme must publish a semi-annual and an annual report for each financial year and send them to investors within two months of the end of the period.
The annual report's performance section includes a comparative table for the last three financial years covering NAV, units in circulation, distributions, total expense ratio and portfolio turnover ratio.
The annual report must show average total returns over one, three and five years and annual total returns for each of the last five financial years.
The manager's report must state whether soft commissions were received and whether cross trades were carried out and reviewed by the oversight function.
Why Reporting Matters
Keeping investors informed is a core part of service. Each provider has its own processes and timing, but the study guide describes what investors generally receive.
On Buying Units
| Confirmation | Detail |
|---|---|
| Money received | Confirmation the application amount has arrived |
| Units allotted | Number of units and the NAV per unit on the allotment date |
| Charges | The initial service charge as a percentage and in ringgit, and the net amount invested |
| Evidence of ownership | A statement (certificates are now uncommon) |
While Units Are Held
Providers commonly send periodic statements (quarterly, half-yearly or annually) showing units held and their value, often with a performance update.
The UTF and PRS Guidelines require at least two reports per financial year: a semi-annual and an annual report, each sent within two months of the end of the period. Discussing these reports with investors is an excellent way to provide service and to check that the investment still meets their objectives.
The Annual Report
| Part | Main contents |
|---|---|
| Fund information | Name, type and category; objective; benchmark; distribution policy |
| Fund performance | Comparative table for the last three financial years (or since launch): portfolio composition; fund NAV; NAV per unit and units in circulation; highest and lowest NAV per unit; total return split into capital growth and income; distribution per unit; total expense ratio; portfolio turnover ratio |
| Average total return over 1, 3 and 5 years (or since launch) and annual total return for each of the last 5 financial years | |
| Warning that past performance is not necessarily indicative of future performance and that prices and returns may go down as well as up | |
| Manager's report | Operational review; 5-year performance (graphical); comparison with the benchmark; analysis of performance using NAV adjusted for distributions; changes in portfolio composition; whether soft commissions were received; whether cross trades occurred and were reviewed by the oversight function as being in the fund's interest; economic and market review, outlook and strategy |
| Trustee's report | Opinion on whether the manager kept within its investment powers, priced and valued properly and created and cancelled units properly; disclosure of shortcomings and steps taken |
| Shariah adviser's report | For Shariah-compliant funds |
| Financial statements and auditor's report | True and fair view under accounting standards, legal requirements and the deed |
The Semi-Annual Report
At minimum: fund information, a performance report, the manager's report, the Trustee's report, the Shariah adviser's semi-annual review (where applicable) and financial statements for the half-year. It must state clearly whether the financial statements are audited.
On Selling Units
| Confirmation | Detail |
|---|---|
| Receipt of request | That a proper request (and endorsed certificate, if any) was received for a number of units, all units or a ringgit value |
| Units redeemed | Number of units, NAV per unit on the repurchase date and net amount payable |
| Exit fee | Rate as a percentage and in ringgit, and the total amount repurchased |
| Balance | Units remaining, with a balance certificate if certificates are used, or a passbook entry |
PRS Tax Points Investors Ask About
The study guide reminds Consultants that:
- a PRS member gets tax relief of up to RM3,000 a year on contributions, available from year of assessment 2012 to 2030; and
- a pre-retirement withdrawal (before age 55) is subject to an 8% tax penalty, except withdrawals on reaching retirement age, on death, on permanent departure from Malaysia, for permanent total disablement, serious disease or mental disability, for healthcare and for housing.
Consultants should check the PPA's website for the latest tax relief rules. Chapter 7B covers these rules in detail.
Three Cost and Activity Measures in Fund Reports
| Measure | What it shows | Where you meet it |
|---|---|---|
| Management expense ratio (MER) | Annual operating costs (fees plus recovered expenses) as a percentage of the fund's average value | Annual fund report for UTS (Chapter 7A shows the calculation) |
| Total expense ratio (TER) | The fund's total expenses relative to its average size, shown in the three-year comparative table | Annual report performance section |
| Portfolio turnover ratio (PTR) | How actively the portfolio was traded during the year; a high figure means more buying and selling and more transaction costs | Annual report and the Product Highlights Sheet |
A rising expense ratio eats into returns every year, and a very high turnover ratio may signal a trading style that does not match a long-term objective. Both are worth raising with investors.
Using Reports in a Client Review
A Consultant meeting a client for an annual review could:
- compare the fund's annual total return with its benchmark and with the client's expectations;
- check the total expense ratio and portfolio turnover ratio for rising costs or unusually heavy trading;
- read the Trustee's report for any shortcomings disclosed;
- look at changes in portfolio composition against the stated objective; and
- ask whether the client's own circumstances have changed, updating the suitability assessment if needed.
Within what period must a fund's semi-annual and annual reports be sent to investors?
Within six months of the end of the period
Within two months of the end of the period
Within three months of the end of the period
Within one month of the end of the period
How many years does the comparative performance table in a fund's annual report cover?
One year
The last three financial years, or since launch if shorter
Only the current financial year compared with the benchmark
The last ten financial years
Which statement must the manager's report in an annual report contain?
A forecast of next year's distribution rate
Whether any soft commission was received
A guarantee that the fund will beat its benchmark
The personal share holdings of each fund manager
Sections you finish are checked off in the contents.