You will be able to explain how platforms and banks hold your units and what protects them.
A few weeks after opening his platform account, Arjun reads a news story about an overseas investment app that shut down. Users there could not trade for weeks while their accounts were sorted out. He looks at his own balance, now a little over S$8,000, and wonders what would happen to it if his platform closed tomorrow. Would his units disappear with the company?
The short answer is that they should not, but the details matter, and some of them could cost you money. This lesson explains how your units are held, what keeps them apart from the platform's own money, and what you cannot rely on.
When you buy a unit trust directly from a manager, your name goes on the fund's register of unit holders. When you buy through a platform or a bank, it often does not. Instead, the units are registered in the name of a nominee: a company that holds assets in its own name on behalf of their real owners. The nominee is usually linked to the platform or to a custodian it appoints.
The platform keeps its own records showing which units belong to which customer. So the fund's register might show one nominee company holding units for thousands of people, and the platform's books show that a certain number of those units are Arjun's. He is the beneficial owner, meaning the units are his, even though the legal name on the fund's register is the nominee's.
Platforms work this way because it makes trading cheaper and faster, since a purchase or switch is recorded in the platform's own systems and the fund's register barely changes. The arrangement is normal across the industry, though it puts weight on how well the platform keeps its records.
Your main protection is segregation, meaning that licensed firms in Singapore that hold customers' assets are required by MAS rules to keep them separate from the firm's own assets, in accounts designated as held for customers, and to keep records showing whose assets are whose.
If a platform fails, its creditors have claims on the platform's own money. Customer assets held properly in segregated accounts belong to the customers, so they should be returned to them or moved to another provider. Further down the chain, the fund keeps its own assets apart as well. They sit with the fund's trustee and custodian, as you traced in lesson 1.4, Trace one fund from your money to its holdings, so a platform's failure does not touch the shares and bonds inside the fund.
"Should" is doing real work there. Segregation protects ownership. It does not promise speed. Sorting out who owns what after a failure can take time, and during that time you may not be able to sell. If records turn out to be wrong, that has to be put right before assets come back. Choosing a licensed firm, and reading how it holds your assets, is how you lower that risk.
Fund units are investments, and only deposits are insured. The deposit insurance scheme run by the Singapore Deposit Insurance Corporation, which you met in lesson 1.3 of How money works, What SDIC deposit insurance covers and what it does not, covers eligible deposits with member banks and finance companies. It does not cover unit trusts, even when you buy them through a bank that is a scheme member.
This catches people out. Wei Ling bought her fund at a bank branch and had half assumed it was protected the way her savings account is, which turned out to be wrong. Its value goes up and down with the market, and no scheme makes good a fall in value.
Uninvested cash sitting in a platform account is a separate question. Read the platform's terms to see where that cash is held and whether it is a deposit with a bank.
Suppose Arjun later wants to move to a cheaper platform. Ideally he transfers his units across without selling them, and the nominee on the fund's register changes. That keeps him invested and avoids any selling costs.
Transfers are not always possible. The new platform may not offer the same fund or the same share class. One of the platforms may not accept transfers of that fund at all. The class he holds might not exist outside the old platform. In any of these cases, the only way out is to sell, take the cash, and buy again at the new platform. That leaves him out of the market for a few days, as you saw with switches in lesson 1.2, Why your fund's price arrives a day later, and may bring a selling or buying charge.
So the time to find out is before you buy. A platform's terms will usually say whether it accepts transfers in and out, for which funds, and at what charge.
Every platform and bank publishes terms that cover custody and transfers, usually in a section on how your investments are held. The words to search for are nominee, custodian, segregation and transfer. In the activity below you will read your own provider's terms and write down who holds your units and whether they can be moved.
Read your platform or bank's terms on custody and transfers and write down who holds your units and whether they can be moved.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).