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The concept of Unit Trusts

Unit Trust Funds are pooled investment vehicles where the funds collected (pooled) are utilized to purchase a pre-agreed type of financial security or securities. For example, an Equity Unit Trust Fund invests in listed stocks only.

A Group of people with a common objective get together and contribute to a pool of money

When People put in money, it is Referred to as investing in UNITS. For Example if a person puts in 1,000 rupees and the unit price that day is 20 rupees, that means he is entitled to 50 units.

Which is safely collected in a trust overlooked by a trustee

The trustee's responsibility is to make sure that the funds are in safe hands and that they are invested appropriately in the best interest of the investor.

The trustee then hands over the funds collected to a fund manager

The return is captured in terms of the difference in unit price from the day of investing and withdrawing their money.

The investors benefit from a return

The return is captured in terms of the difference in unit price from the day of investing and withdrawing their money.


The Investors Return

Investors are then allocated Units worth a certain value in proportion to the amount they invested in the fund. The investors return is the growth or movement in Unit price value. The Unit Price value is based on the overall funds available and investment return generated at a given point in time (such as Interest income, Dividend and capital gains), net of fees (Management fees, Custodian fees, Trustee fees) and other applicable administrative fees.



Who manages the funds?

Funds are managed by qualified fund managers who have expertise is specific asset classes. Often, the fund managers are backed by an independent Research team who carries out detailed Research and Analysis.


How secure is a Unit Trust Fund?

A unit trust is governed by a Trust Deed. The Trust is administered by a Trustee, often a reputable bank. (The Trustee of Guardian Acuity Unit Trust Funds is Deutsche Bank). The Trustee’s responsibility is to ensure that the funds are invested appropriately.

In Sri Lanka, Unit Trust funds are licensed by the Securities and Exchange Commission (SEC) of Sri Lanka. Thus, not everyone can offer Unit Trust Funds.


Types of Unit Trust Funds

Unit Trust Funds can be categorized based on a variety of factors such as (1) how the fund is structured (Open Ended vs. Closed ended Funds) (2) the type of asset class(es) the fund invests in (3) the style of investing (active vs. passive) (4) The investment Time Horizon etc.

Open Ended vs. Closed ended Funds

As the name implies, open ended Unit Trust Funds are 'open ended', where investors can enter and exit the fund at any time. Accordingly, there are no restriction on the number of units to be issued by the fund which means the fund does not have a maturity date. The entry or exist of investors does not have an impact on Unit Price value. All Guardian Acuity Unit Trust Funds are open ended.

A closed ended Unit Trust Fund is often structured in the form of a publicly traded stock. The key difference between an Open ended and Closed ended Unit Trust Fund is that in the latter, Units have to be purchased/sold in the market at a market determined price. Thus, such type of funds always have a limited group of investors.

Type of asset class(es) the fund invests in

The type of asset class(es) a fund invests in depends on the investment objective of the fund. A unit Trust Fund can be invested in a single asset class or more than one asset class. For instance, a balanced fund invests in both fixed income and equity subject to a maximum and minimum mix of proportions.

The style of investing

The style of investing can be either active or passive. In a passively managed fund, the funds are invested in the same proportions as the constituents of a specific benchmark. The idea is that the fund mirrors the performance of the benchmark to the greatest extent as possible. Such funds are often defined as Indexed Unit Trust Funds.


Risks of Investing in Unit Trust Funds

Unit Trust Fund returns are variable and subject to change, as fund returns in turn are dependent on the returns generated by the specific instruments/securities the fund is invested in which may vary based on market conditions and other applicable risk factors such as default.

Thus, Past Unit Trust Fund Returns are not a guarantee of their future performance.

Assets under Management (AUM)

This is the total market value of assets that an investment company manages on behalf of investors

Net Asset Value

Net asset value (NAV) represents a fund's per unit market value.

Yield

Yield is a measure of the income return of a Unit Trust Fund.

Cumulative Annual Growth Rate (CAGR)

CAGR can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.

Duration

Duration is a measure of the sensitivity of the price -- the value of principal -- of a fixed-income investment to a change in interest rates.

Expense Ratio

The expense Ratio calculates operating expenses for a unit trust fund per average rupee of assets under management.

Trustee/Custodian Bank

The trustee of all Guardian Acuity Unit Trust Funds is Deutsche Bank. The trustee’s responsibility is to ensure that the funds are invested appropriately.

KYC

KYC denotes “Know Your Customer”. According to the Financial Transactions Reporting Act and the Unit Trust Code, it is mandatory that Asset Management firms have records of investor information in the form of a KYC.

Fund Managers

Fund Managers are qualified investment professionals who manage the funds overall by making investment decisions and managing the portfolio.

Management Fee

Management fee is the fee charged by the fund management company as compensation for managing the portfolio. Generally it is a flat percentage fee paid on the total assets under management.

Registrar

The registrar is responsible for keeping a register or official records.

Commercial Papers

A commercial paper is a short term fixed income instrument used by corporates to borrow money to finance their short term funding needs. They are similar to Debentures but are short term.

Securitization papers

Securitization papers are financial instruments issues by financial institutions against a pool of assets such as mortgages.

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