Unit trust is a word used by many FPs without much understanding. The purpose of the following blog posting is to help FPs to unit trust as describe in the fund prospectus. I will use Schroder Greater China Fund prospectus as an illustration.
Unit trust is legal arrangement. Each trust is a legal document which spells out the mandate of the fund. For example, if the mandate says “China fund”, the fund manager can only use the money collected to invest into China or HK stock-market. It can’t invest in India stock market. Unit trust consists of 3 main parties. They are the fund managers; trustees and the unit holders (i.e. investors like you and me). Their respective roles are as follows:
The fund manager
In this case, the fund is Schroder Investment Management (S’pore) Ltd. FPs should take note that the fund manager is a business entity and not an individual. Within Schroder, they are many “portfolio managers” (i.e. individual manager) to make investment decisions. The role of these portfolio managers (usually CFAs) is to decide which company’s share or bond to be invested. The parameter is spelled out in the trust deed.
FPs should note that the internal process of screening the stocks in the fund manager company is very intense. And we should respect that process even though there is no guarantee of the fixed return. Anyway, there is no guarantee return in the world of investment.
The trustee
In this case, the trustee is HSBC Institutional Trust Service (S’pore) Ltd. The role of the trustee is to over –see the fund and sometimes serves as the custodian of the fund. The fund manager is legally accountable to the trustee. Therefore, the fund manager cannot run away with the money.
If the trustee goes into liquidation, the fund is intact because the find is ring-fence by the trust deed. In normal situation, the next trustee will be appointed to take over.
The unit holders
The unit holder is you and me. Unit trust provides a way for you and me to invest in areas which could be prohibitive as an individual. For example; emerging market equities; US$ high yield bonds. As these products requires either foreign currency or large amount money.
Unit trust is legal arrangement. Each trust is a legal document which spells out the mandate of the fund. For example, if the mandate says “China fund”, the fund manager can only use the money collected to invest into China or HK stock-market. It can’t invest in India stock market. Unit trust consists of 3 main parties. They are the fund managers; trustees and the unit holders (i.e. investors like you and me). Their respective roles are as follows:
The fund manager
In this case, the fund is Schroder Investment Management (S’pore) Ltd. FPs should take note that the fund manager is a business entity and not an individual. Within Schroder, they are many “portfolio managers” (i.e. individual manager) to make investment decisions. The role of these portfolio managers (usually CFAs) is to decide which company’s share or bond to be invested. The parameter is spelled out in the trust deed.
FPs should note that the internal process of screening the stocks in the fund manager company is very intense. And we should respect that process even though there is no guarantee of the fixed return. Anyway, there is no guarantee return in the world of investment.
The trustee
In this case, the trustee is HSBC Institutional Trust Service (S’pore) Ltd. The role of the trustee is to over –see the fund and sometimes serves as the custodian of the fund. The fund manager is legally accountable to the trustee. Therefore, the fund manager cannot run away with the money.
If the trustee goes into liquidation, the fund is intact because the find is ring-fence by the trust deed. In normal situation, the next trustee will be appointed to take over.
The unit holders
The unit holder is you and me. Unit trust provides a way for you and me to invest in areas which could be prohibitive as an individual. For example; emerging market equities; US$ high yield bonds. As these products requires either foreign currency or large amount money.
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