Collective investment schemes: valuation, pricing and structure
What is tested
The mechanics of collective investment schemes: how a unit is valued and priced, and how fund structure and distribution rules shape the investor's outcome.
Core rules
- Net asset value (NAV) = (total assets - total liabilities) / units in circulation. Assets are marked at the valuation point; a stale or illiquid price is a valuation risk, not a rounding error.
- Forward pricing: an order is priced at the next valuation point, not the last published price. The investor does not know the exact price when the order is placed.
- Single pricing: one NAV per unit serves both buying and selling; the sales charge is paid by the investor on top, so it does not increase the fund's NAV.
- Unit trust funds are managed by a licensed fund management company; the trustee or custodian holds the assets and provides an independent check on the manager. That separation is investor protection, not administration.
- Exchange-traded funds are listed and trade intraday at market prices that can sit above or below NAV. Authorised participants create and redeem units to keep the two close.
- Malaysian REITs must invest at least 50% of total assets in real estate and distribute at least 90% of distributable income to unitholders, which is why yield analysis matters more than NAV growth in a REIT.
Worked example
Fund assets: securities RM50,000,000 plus cash RM1,000,000. Liabilities: RM600,000. Units in circulation: 40,000,000. NAV = (51,000,000 - 600,000) / 40,000,000 = 50,400,000 / 40,000,000 = RM1.26 per unit. An investor buying with a 5% sales charge pays 1.26 x 1.05 = RM1.323 per unit. The extra 6.3 sen goes to the distributor, not into the fund.
Traps that cost marks
- Dividing assets by units first and deducting liabilities afterwards.
- Using the offer price to calculate fund performance, which double counts the sales charge.
- Treating an ETF's market price as its NAV, or forgetting the premium or discount.
- Assuming a large distribution means a good fund - NAV falls by the distribution, so total return is the measure.