CCM Unit Trust cheat sheet

A unit trust is a collective investment scheme in which investor money is pooled and held by a separate trustee/custodian, while a management company (fund manager) runs the portfolio under the trust deed.

The trust deed (constitutive document) is the governing contract among manager, trustee and unitholders; it sets investment objective, permitted investments, fees, valuation rules and termination conditions.

Core separation of duties: the manager makes investment decisions; the trustee/custodian safeskeeps assets and monitors compliance; neither role may be performed by the same legal entity without regulatory approval.

Regulators typically require authorization/registration of the scheme and approval of the manager and trustee before any units may be offered to the public.

Permitted-investment and diversification rules limit exposure to a single issuer, single scheme or single counterparty; breaches must be reported and remedied within prescribed periods.

Valuation and pricing rules govern how net asset value (NAV) per unit is calculated: NAV = (total assets - total liabilities) / units in issue, computed at stated valuation points.

Ongoing disclosure obligations usually include annual audited and periodic (often semi-annual) reports, a prospectus, and notification of material changes to the scheme or its fees.

Redemption rules and dealing cut-off times are set by regulation and the deed; investors generally have a right to redeem at NAV subject to notice periods and any permitted dilution levy.

Distribution rules: income may be distributed or reinvested per the deed; equalization and distribution-period accounting prevent new investors from diluting or capturing accrued income.

Open-ended funds create and cancel units continuously at NAV; closed-ended funds have a fixed unit count traded on an exchange, so price can diverge from NAV.

Forward pricing: subscriptions and redemptions are executed at the next NAV struck after the dealing cut-off, not at a stale or historic price.

Dilution (single swinging) pricing may adjust NAV up or down to protect existing investors from the transaction costs caused by large inflows or outflows.

Accumulating units reinvest income into the fund, raising NAV per unit; distributing units pay income out, lowering NAV per unit by the distribution amount.

Total expense ratio (TER) expresses annual fund costs as a percentage of average net assets; it excludes one-off transaction costs and sales charges.

Subscription/redemption mechanics require identity verification (KYC/AML), source-of-funds checks, and settlement within the deed's stated settlement cycle.

Reconciliation is continuous: units in issue, cash balances, and custody holdings must agree to the fund's accounting records at each valuation point.

Money market funds target stable short-term NAV with high-liquidity, low-duration instruments; bond funds carry interest-rate and credit risk; equity funds carry market risk.

Suspension of dealing is permitted only on defined grounds (e.g., inability to value assets, market closure) and must be disclosed and reported to the regulator.

Offers to the public require an approved/registered prospectus; marketing material must be consistent with it and must not contradict or override it.

Fair, clear and not misleading standard: performance claims must be balanced with risk warnings, and past performance must be labelled as no guide to future returns.

Performance figures must state the period, currency, basis (bid/offer/NAV), and whether income was reinvested; annualized figures cannot be shown for periods under one year.

Sales charges, entry/exit fees and ongoing charges must be disclosed before investment; commission-sharing or inducements must be disclosed and must not conflict with client interest.

Suitability and appropriateness: the distributor must assess the client's objectives, risk tolerance, horizon and knowledge before recommending a fund.

Cooling-off/right-of-withdrawal periods, where mandated, allow the investor to cancel within a set number of days and receive a refund per the stated terms.

Advertising must not guarantee returns, must not downplay risk, and must identify the manager and the fund clearly; hypothetical or simulated returns must be labelled as such.

Cold-calling and distance marketing are restricted: consent, calling-time limits, and record-keeping of advice and orders are typically required.

Fiduciary duty: act in the client's best interest, place client interests above the firm's or the representative's own interests, and avoid or manage conflicts.

Know-your-client and know-your-product rules: collect sufficient information and only recommend products the representative understands and that fit the client.

Confidentiality: client data may be used only for the purpose collected, shared only with consent or legal requirement, and protected against unauthorized access.

Personal account dealing by staff in funds they manage or advise on is restricted; pre-clearance and blackout periods prevent front-running and market abuse.

Gifts and entertainment must be disclosed and kept within defined limits; excessive benefits compromise independence and must be refused or reported.

Record-keeping: advice, orders, complaints and disclosures must be documented and retained for the regulator's minimum retention period.

Complaints must be logged, investigated within stated timelines, and escalated; unresolved complaints go to the external ombudsman or dispute body.

Insider information and market manipulation are prohibited; suspicious transactions must be reported to the compliance/AML officer, not tipped to others.