Friday, 22 August 2014

Collective Investment Scheme - Unit Trust

Several years ago I was introduced to the idea of diversification and portfolio composition in investment. During my search to find that single investment product that would satisfy both objectives of a diversification and a solid portfolio composition of underlying stocks, I came upon a collective investment scheme described as a unit trust. A unit trust is one form of a collective investment scheme that pools the money of a group of persons and composes a selected group of underlying investment assets beit, equities (stock), bonds, or real estate assets and places these underlying assets into one basket of assets for distribution to other investors in fractional portions. The total portfolio of asset is divided into fractions called creation units and is priced subject to the Net Asset Value (NAV) of the total sum of portfolio of assets divided by the total number of creation units after liabilities.

  Net Asset Value
  Number of units        ─ Liabilities = Unit price

Unit trusts are similar in nature to mutual funds with the slight differences being how they are organized as collective investment schemes. On one hand, mutual funds are either closed end or open end fund, and are distributed in accordance with the mutual fund prospectus, but on the other hand, unit trusts are distributed as they are created and available according to a trust deed.  All collective investment schemes carry redemption rights of the units issued. To exercise the right of redeeming the units held, you may be required to pay a fee depending on the class of unit trust you purchased.

A unit trust is introduced to investors by way of an offering circular while a mutual fund is introduced to investors by way of a prospectus. Both offering documents are similar to each other with some common features such as the:
1.     Borrowing privilege of the fund, (generally no more than ten percent (10%) of the trust/fund’s value)
2.     Strategy
3.     Objective
4.     Fees (Management, Distribution, Administrative, and other expense related fees to operate the trust/fund)
5.     Matters treating on taxes include other investor concerns.
6.     Investment Manager
7.     Custodian/Trustee

You may want to have a look at investing in a unit trust as an asset class that pools the fund from a group of individual and invest those funds for the benefit of all.


Feel free to comment and ask questions.

Unit Trust links:
Sagicor Sigma Funds
JMMB Income Growth Funds

Video Link:

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