Unit Trusts & Funds
Unit trusts (also called mutual funds) are collective investment schemes that pool money from multiple investors and invest in a diversified portfolio managed by a professional fund manager. Banks distribute unit trusts to retail and wealth clients as a core investment product.
📌 Key Concepts
| Term | Definition |
|---|---|
| NAV | Net Asset Value — total fund assets minus liabilities, divided by units outstanding |
| Unit | One share of ownership in the fund |
| Subscription | Buying units in a fund |
| Redemption | Selling units back to the fund |
| Front-End Load | Sales charge applied at subscription (e.g. 3–5% of investment amount) |
| Back-End Load | Charge applied at redemption (less common) |
| Expense Ratio | Annual fund operating cost as a % of AUM |
| Trailer Fee | Ongoing distribution fee paid by fund manager to the distributor (bank) |
| Switching | Moving investment from one fund to another within the same fund house |
🏦 Fund Categories
| Category | Description | Risk Level |
|---|---|---|
| Money Market | Invests in short-term instruments (T-bills, commercial paper) | Low |
| Bond / Fixed Income | Invests in government or corporate bonds | Low–Medium |
| Balanced / Mixed Asset | Mix of equities and bonds | Medium |
| Equity | Invests primarily in listed stocks | Medium–High |
| Sector / Thematic | Concentrates on a sector (tech, healthcare, ESG) | High |
| Alternatives | Hedge funds, REITs, commodities | High |
🛠️ Subscription Workflow
- Client selects fund and amount; bank verifies suitability via Customer Knowledge Assessment (CKA) or Customer Account Review (CAR)
- Application form (paper or digital) completed; investment amount debited from client account
- Bank submits subscription request to fund manager or fund platform (e.g. Fundserv, iFAST)
- Fund manager processes at next available NAV (typically T+1 or T+2 cut-off based)
- Units allocated and confirmed; client statement updated
- Trade confirmation and contract note issued to client
🛠️ Redemption Workflow
- Client submits redemption request (full or partial units)
- Bank submits to fund manager before cut-off time (commonly 3:00 PM SGT)
- Fund manager processes at next NAV; redemption proceeds calculated net of charges
- Proceeds credited to client account within settlement period (T+3 to T+7 depending on fund)
- Confirmation and updated statement issued
🧮 Key Calculations
NAV Per Unit
NAV Per Unit = (Total Fund Assets - Total Fund Liabilities) / Units Outstanding
Example: Fund assets SGD 500M, liabilities SGD 5M, units outstanding 250M
NAV Per Unit = (500,000,000 - 5,000,000) / 250,000,000 = SGD 1.98
Subscription Units Allocated
Units = Investment Amount / (NAV + Front-End Load)
Illustrative example using an offer price that adds a 3% sales charge to NAV: invest SGD 10,000, NAV = SGD 1.98
Offer Price = 1.98 x 1.03 = SGD 2.0394
Units allocated = 10,000 / 2.0394 = 4,903.4 units
Some funds instead deduct the sales charge from the subscription amount. Use the prospectus and transaction terms for the actual pricing method.
Redemption Proceeds
Proceeds = Units Redeemed x NAV (at redemption date)
Example: Redeem 4,903.4 units at NAV SGD 2.15
Gross proceeds = 4,903.4 x 2.15 = SGD 10,542.31
Less back-end load (if applicable): SGD 0
Net proceeds = SGD 10,542.31
📊 Regular Savings Plan (RSP)
Banks offer monthly automated contributions into selected funds:
- Client sets a fixed monthly amount (e.g. SGD 100–SGD 10,000)
- Auto-debit from client account on a set date each month
- Units purchased at prevailing NAV on processing date
- Dollar-cost averaging effect reduces timing risk
- Can be paused or stopped with notice
📋 Compliance & Controls
- Collective investment schemes offered in Singapore must fall within the applicable authorised, recognised, restricted or exempt offering framework
- CKA or CAR and suitability requirements applied where required for the client, service and product
- Product Highlights Sheet (PHS) and fund prospectus must be provided before subscription
- Fees, charges, rebates and conflicts disclosed under the applicable conduct and fair-dealing requirements
- Annual portfolio reviews for wealth clients to ensure continued suitability
- AML checks on subscription proceeds; source of funds may be required for large amounts
- Switching between funds subject to same suitability checks as new subscription