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.
Click to find Guardian Acuity Unit Trust Fund Returns
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.
