An attractive feature of unit trusts is that they are price transparent. You know precisely what the charges are from the onset and they reflect the actual value of the trust. The pricing mechanism of units is designed to ensure fair pricing. The value of the unit trust scheme is always based on its Net Asset Value (NAV) i.e. the market value of a fund’s underlying investments, plus other assets less liabilities, at the end of each trading day. The NAV per unit is thus the NAV of the fund divided by the total number of units in circulation.
There are two prices quoted for any unit trust fund i.e. the Manager’s Selling Price and Buying (Repurchase) Price. The Selling Price is the price at which the management company sells its units to the unitholders. The Buying (Repurchase) Price is the price at which the management company repurchases its units from the unitholders. The spread between the two prices is usually about 5%.
The Guidelines on Unit Trust Funds issued by the Securities Commission regulates the pricing of units by management companies to ensure that the units are fairly priced and investors’ interests are protected.
Two pricing methods may be practised by management companies - `Forward Pricing’ and `Historic Pricing".
Under the historic pricing method, the Selling Price and Buying (Repurchase) Price for units are based on the NAV of the fund at the close of the Bursa Malaysia, immediately before the investors’ request to purchase or redeem units is received by the management company. For example, the selling price computed at the close of the Bursa Malaysia on Monday, will be valid and enforceable for investors’ purchase of units on Tuesday, until the next valuation is computed at the close of the Bursa Malaysia on Tuesday. Thus investors will know the dealing prices for their unit transactions.
With the forward pricing method, both the buy and sell transactions are traded at prices next determined, i.e. the Selling Price and Buying (Repurchase) Price are based on the NAV of the fund, at the end of the day immediate upon closing of the Bursa Malaysia, after the investors’ application to purchase or redeem units is received by the management company. The dealing prices for transactions made by investors will only be known at the end of each business day, upon the close of the Bursa Malaysia. For example, suppose an investor redeems 10,000 units on Tuesday. The Buying (Repurchase) Price for the units redeemed by the investor will be based on the NAV of the fund computed at the close of the Bursa Malaysia on Tuesday (which will be published in major newspapers the following day, on Wednesday).
Under the SC Guidelines on Unit Trust Funds, forward pricing is the preferred method of pricing unit trust funds. Historical pricing is no longer being allowed for new funds/schemes.
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