Unit Trusts & Authorised Funds

A unit trust is a type of COLLECTIVE INVESTMENT SCHEME (CIS): an arrangement that POOLS money from many investors into a single portfolio, which is then invested and managed collectively so that investors share the returns (and risks) in proportion to their holdings.

Each investor's stake is represented by UNITS. Buying into the fund creates (issues) new units; redeeming cash in the units. The number of units an investor holds, multiplied by the value of each unit, is the value of their investment.

Pooling gives a small investor access to a professionally managed, DIVERSIFIED portfolio that would be costly or impractical to assemble individually. The investor delegates security selection and portfolio management to a professional fund manager.

The scheme is a pass-through vehicle: the underlying assets (shares, bonds, cash, etc.) are held on behalf of unitholders, and gains, losses, income and costs flow through to them via the unit price and any distributions.

A unit trust is governed by a TRUST DEED and typically involves three key roles:

• •The MANAGER (fund management company) makes the investment decisions, runs the portfolio in line with the fund's stated objective and mandate, markets the fund and handles dealing (issuing and redeeming units).
• •The TRUSTEE holds the scheme's assets on trust for the unitholders, safeguards those assets, and oversees the manager to ensure it acts in unitholders' interests and within the trust deed. A CUSTODIAN provides safekeeping of the assets.
• •The UNITHOLDERS are the investors who own the units and are the beneficial owners of the pooled assets.

The SEPARATION of the manager (who decides) from the trustee/custodian (who holds and safeguards the assets) is an important investor protection: the manager cannot simply run off with the money, because it does not have custody of the assets.