7B.14 PRS Unit Creation, Forward Pricing, Valuation, Distributions, Performance Measurement and Electronic Communication

Creating and Cancelling Units

• The Scheme Trustee creates and cancels units on the PRS Provider's advice when members buy or redeem.
• During an initial offer period of no more than 21 days, the unit price is fixed.
• After that, all dealings are at the NAV per unit at the next valuation point (usually the close of the business day) after the request: forward pricing.
• Where the PPA's prior authorisation is needed (for example a withdrawal after death), the price is the NAV at the next valuation point after the provider receives the PPA's authorisation.
• FIMM's IMS 1 sets the 4.00 pm dealing cut-off time for same-day pricing; later applications use the next day's price.

Forward Pricing Examples

Valuation points differ between providers, so the next valuation point decides the price.

Valuation and Incorrect Pricing

Holding of Units by the Provider

A PRS Provider may hold units only to facilitate sales and repurchases and reduce creations and cancellations. It can gain or lose on them, so the SC sets maximum holdings. If the provider or a related company holds units, it needs policies and controls for conflicts of interest.

Unit Splits and Distributions

Unit split: lowers NAV per unit but not the value of holdings. Example: Member ABC holds 1 unit at RM2.10; after a 2-for-1 split she holds 2 units at RM1.05. Statements must explain what a split is, why it was done and its effect, and confirm that the investment's value is the same before and after and future gains are unaffected.

Distributions: paid in units, they reduce NAV per unit because more units share the same pool. Example: Member QQQ holds 800 units at RM2.00; a RM0.40 dividend paid in units leaves him with 1,000 units at RM1.60, still worth RM1,600. If no distribution is declared, the NAV per unit grows instead.

Measuring Performance

Performance figures appear in the disclosure document and fund reports.

Average total return

$$\text{Average total return} = \frac{(\text{NAV}_{\text{end}} - \text{NAV}_{\text{begin}}) + \text{Dividends}}{\text{NAV}_{\text{begin}}}$$

Compounded annual return (CAR)

CAR standardises returns over different periods. RM1,000 growing to RM1,300 in 5 years is 5.39% a year; RM1,000 growing to RM1,700 in 10 years is 5.45% a year.

Drawbacks: it assumes the same return every year, ignores risk (volatility), and needs context. A fund with 9.50% CAR over 15 years (many market cycles) is not necessarily inferior to one with 10% over two years.

Exam Pointers

• PRS dealing is at the next valuation point (forward pricing); the initial offer period is at most 21 days.
• After a death, the price is the NAV at the next valuation point after the PPA's authorisation reaches the provider.
• NAV is published daily on the provider's and the PPA's websites.
• Unit splits and distributions paid in units lower NAV per unit without changing the member's total value.
• Average total return includes dividends; CAR annualises returns over different periods but ignores risk.

Electronic Communication

A PRS Provider may send reports, statements and notices electronically if:

1. members were told of the method when they opened their account; or
2. before making electronic delivery the default, it posts a notice to all members that they will be enrolled automatically unless they opt out.