You will be able to explain how a unit trust works, how NAV per unit is worked out, and why you do not know your price when you place an order.
Two hundred people each want to own a small piece of a hundred different companies. If each of them went out and bought a hundred shares each, every one of them would pay high fees and handle a lot of paperwork, so they put their money into one pot, pay a professional to invest it, and divide the pot into equal slices, with each person owning slices according to how much they contributed. A unit trust works on the same principle.
In a unit trust, investors buy units, and each unit is an equal share of everything the fund holds. The rest of the course uses the term in this sense. Two companies share the running of the fund. The fund manager chooses what to buy and sell, and has to stay within the rules written into the fund's documents. The trustee is a separate company, usually a bank or trust company, which holds the assets for the investors and checks that the manager keeps to those rules. Because the roles sit with different companies, whoever picks the investments never controls the money alone.
When a unit trust is offered to the public in Singapore, it generally has to be authorised or recognised by MAS, the Singapore regulator, and it has to come with a prospectus and a Product Highlights Sheet. People sometimes read authorisation as a stamp of quality. It means only that the fund meets MAS rules on structure and disclosure. Whether the fund will make money, and whether its fees are fair, are questions authorisation does not answer.
You can't buy units on an exchange the way you buy a share. Instead, the fund calculates its net asset value (NAV) at the close of each dealing day. NAV is the market value of all the fund's holdings minus whatever the fund owes, for example fees due to the manager. Dividing NAV by the number of units in issue gives NAV per unit, and that figure is the day's price. Take a fund holding investments worth S$100 million that owes S$0.5 million in fees and expenses (invented figures). The NAV is S$100 million - S$0.5 million = S$99.5 million. With 49.75 million units in issue, NAV per unit is S$99.5 million / 49.75 million = S$2.00.
The number of units you receive is the amount you put in, less any sales charge, divided by NAV per unit. If you invest S$1,000 and pay no charges, you get S$1,000 / S$2.00 = 500 units. If NAV per unit later goes up to S$2.20, those 500 units are worth 500 units x S$2.20 = S$1,100.
When you place an order, the price isn't known yet. Most unit trusts in Singapore use forward pricing: your order gets the NAV calculated at the next valuation point after it reaches the fund. Each fund sets a dealing cut-off time. An order received before the cut-off is usually priced at that day's valuation, and one received after it is held for the next valuation. The rule prevents anyone from buying at an out-of-date price once news has moved the market, and it explains why the confirmation showing your price arrives a day or two after you click buy.
You pay charges at two different points. A sales charge is taken when you buy, and it cuts the amount that actually goes into the fund. With a 3% sales charge (an invented figure) on the same fund, S$1,000 leaves S$970 invested, which buys S$970 / S$2.00 = 485 units, where the charge-free purchase bought 500. The management fee and similar charges come out of the fund every day instead. No bill reaches you, and the only sign of them is a NAV slightly lower than the fund would otherwise have. Over time the charges you don't see are often the most expensive ones, and Module 2 works through each charge one at a time for that reason.
Holding units also gives you different rights from holding the shares the fund owns. You have no vote at the meetings of the underlying companies, and you can't take a single share you like out of the fund. In return you get diversification and someone else doing the work, at a price. The whole course is about judging whether that price is worth paying.
Find the factsheet for a unit trust you already hold or one you have been offered. Note its NAV per unit on a recent date, the manager's name, the trustee's name, and the dealing cut-off time if the factsheet gives one. If the trustee isn't named on the factsheet, check the prospectus. Keep your notes, because you will use the same fund in lesson 1.4.
Look up the factsheet for one fund you hold or have been offered. Write down its NAV per unit, manager, trustee and dealing cut-off time.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).