2.4 Benefits and Disadvantages of Investing in UTS and PRS

FIMM Combined Examination FCE

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1 Introduction: The FIMM Combined Examination (FCE)

0.1 FCE Exam Facts, Registration Rules and How to Use This Guide

2 Chapter 1: Understanding Collective Investment Schemes in Malaysia

1.1 What a Collective Investment Scheme Is and How Malaysian CIS Are Classified 1.2 Investment-Linked Funds Are Not UTS; Industry Growth and History 1.3 Participants in the CIS Ecosystem: Unit Holders, Managers, Trustees, Distributors and Regulators

3 Chapter 2: Introduction to UTS and PRS

2.1 UTS and PRS as Investments: Mechanics, Unit Calculations and How They Compare 2.2 Types of Funds: By Asset Class, Fund Structure and Investment Objective 2.3 Methods of Investing and Dollar Cost Averaging 2.4 Benefits and Disadvantages of Investing in UTS and PRS 2.5 Understanding Risk and the Risks of Investing in Schemes 2.6 Shariah-Compliant Schemes, Their Risks and the Role of the Shariah Advisory Council

4 Chapter 3: Regulatory Framework

3.1 The Regulatory Framework: The SC, Other Regulators and FIMM's Dual Role 3.2 Legislation, SC Guidelines and FIMM Rules Governing UTS and PRS 3.3 Regulation of Scheme Providers and Oversight Functions 3.4 The Deed, the Prospectus or Disclosure Document, and the Product Highlights Sheet 3.5 Portfolio Constraints: Permitted Investments, Liquidity, Borrowing and Exposure Limits 3.6 Regulations for Other CIS: Real Estate Investment Trusts and Exchange-Traded Funds 3.7 Regulation and Duties of the Scheme Trustee 3.8 Regulation of Marketing and Distribution: Distributor Categories, Collection Points and Agency Structure 3.9 Registration of Consultants: Eligibility, Fit and Proper, Duration, Variation and Revocation

5 Chapter 4 (Part 1): Marketing and Distribution — Disclosure and Transactions

4.1 Servicing Investors and the Contents of the Prospectus and Disclosure Document 4.2 The Product Highlights Sheet, Advertising Standards and Account Maintenance 4.3 The Purchase Process and Suitability Assessment Before Personal Advice 4.4 Cooling-Off Rights, Repurchase of Units, Suspension and Switching 4.5 Financing the Purchase of UTS: Process, Safeguards and the Risk Disclosure Statement 4.6 EPF Transfers and Withdrawals for Investment in Approved Unit Trust Funds

6 Chapter 4 (Part 2): Marketing and Distribution — Distributions, Reporting and Service

4.7 Distributable Income, Distributions and NAV, "Buying" a Distribution and Taxation 4.8 Reporting to Investors: Confirmations, Statements, and Semi-Annual and Annual Reports 4.9 Marketing Principles, Delivering Quality Service and Handling Complaints 4.10 The Effect of Inflation, Taxation and Investment Costs on Returns 4.11 Investment Alternatives to UTS and PRS

7 Chapter 5: Code of Ethics

5.1 Compliance, Ethics and the Structure of the FIMM Code of Ethics 5.2 Core Principle 1: Honesty and Integrity 5.3 Core Principle 2: Professionalism 5.4 Core Principles 3 to 5 and Non-Compliance: Conflicts, Disclosure, Confidentiality and Misconduct

8 Chapter 6: Personal Financial Planning

6.1 Personal Financial Planning: Definition, Features, Five Areas and the Six Steps 6.2 Financial Planner Credentials, Skills, Remuneration, and How a Planner Differs from a Consultant 6.3 The Consultant's Role in Investment Planning and Advising Clients Through the Life Cycle

9 Chapter 7A: Features and Operations of UTS

7A.1 Structure of a UTS, the Trust Deed, the Parties and Modifying the Deed 7A.2 UTS Fees, Charges and Expenses, and the Management Expense Ratio 7A.3 Dealing in Units, Valuation, NAV Calculation and Unit Prices 7A.4 Forward and Historical Pricing, and the UTMC's Holding of Units 7A.5 Unit Splits, Distributions and Their Effect on NAV 7A.6 Measuring UTS Performance: Returns, Performance Tables, Risk Measures and Qualitative Factors 7A.7 Operational Aspects of Shariah-Compliant UTS and PRS and the Shariah Contracts Between the Parties 7A.8 Borrowing to Invest in UTS and the Risks of Loan Financing

10 Chapter 7B (Part 1): The Pension Landscape and the PRS Framework

7B.1 The Malaysian Pension Landscape and the Adequacy of Retirement Savings 7B.2 The World Bank's Five-Pillar Pension Framework in the Malaysian Context 7B.3 Key Players: EPF, KWAP, LTAT, Employer-Sponsored Schemes and Annuities 7B.4 Why Malaysia Needs PRS: Ageing, Longevity Risk and the Benefits of PRS 7B.5 The PRS Framework and the Private Pension Administrator (PPA) 7B.6 PRS Structure, the Trust and Deed, Advantages over Other Products, Eligibility and Contributions

11 Chapter 7B (Part 2): PRS Operations

7B.7 The PRS Default Option and Tax Incentives for Members and Employers 7B.8 The PRS Account Structure (Sub-Accounts A and B) and Vesting 7B.9 PRS Withdrawals: Pre-Retirement, Retirement, Permanent Departure, Incapacity and Death 7B.10 Switching Between Funds and Transferring Between PRS Providers (Portability) 7B.11 Unclaimed Monies, Death of a Member and PRS Nomination 7B.12 PRS Funds: Number, Core and Non-Core Funds, Objectives, Risk Profiles, Asset Classes, Authorisation and Naming 7B.13 PRS Fees, Charges and Expenses 7B.14 PRS Unit Creation, Forward Pricing, Valuation, Distributions, Performance Measurement and Electronic Communication

2.4 Benefits and Disadvantages of Investing in UTS and PRS

Key Takeaways Explain This Topic AI

An equity scheme typically holds 20 to 100 counters, which spreads the risk of losing capital in any single company.

SC Guidelines require Scheme Providers to pay repurchase proceeds as soon as possible and at most within seven business days of receiving the request.

FIMM's study guide states that investors can start investing in schemes with as little as RM10.

Direct scheme charges are the sales charge, repurchase charge and switching fee, while indirect charges include the annual management fee, annual trustee fee and other fund expenses.

If two schemes deliver the same performance, the one with lower fees gives investors the better net return.

Last updated: October 2026

The Benefits
1. Diversification

A larger pool lets the manager buy many investments, so investors gain the portfolio effect : the more holdings, the less volatile the returns. An equity scheme typically holds 20–100 counters . Some schemes also diversify across asset classes (shares, fixed income, property, cash), which adds stability in a falling stock market and liquidity for repurchases.

The study guide's illustration with RM10,000:

Portfolio Holdings After the price move Result
Not diversified 2,000 shares of X at RM5.00 X falls 20% to RM4.00 → RM8,000 Loss of RM2,000 (−20%)

Diversified 1,000 X at RM5.00, 1,000 Y at RM3.00, 1,000 Z at RM2.00 X to RM4.00 (RM4,000), Y up 25% to RM3.75 (RM3,750), Z up 25% to RM2.50 (RM2,500) RM10,250 (+2.5%)

Even if Y and Z had not moved, the diversified portfolio would be worth RM4,000 + RM3,000 + RM2,000 = RM9,000 , a 10% fall instead of 20%.

2. Valuation and liquidity

Liquidity is how quickly an investment can be sold. Schemes are liquid because:

Scheme Providers must value the fund regularly and at least on every dealing day, objectively and verifiably;
they are obliged to repurchase units when asked; and

SC Guidelines require repurchase proceeds to be paid as soon as possible, and at most within 7 business days of receiving the request.

3. Professional management

Investors hand the work of research and monitoring to trained fund managers backed by research resources and an oversight arrangement that sets and monitors investment policy. Every unit holder benefits equally, whatever the size of their holding.

4. Investment exposure and lower costs

A person with RM1,000 cannot buy real estate, foreign shares or corporate bonds directly, but can through a scheme. Managers also pay lower transaction costs (economies of scale), access institutional rates of return , and often receive preferential IPO allocations .

5. Affordability and ease of purchase

The study guide says investors can start with as little as RM10 . Buying is simple: contact a Distributor, obtain the prospectus or disclosure document and apply.

6. Meeting long-term needs

Typical long-term goals are a home purchase or overseas holiday, children's education, and a retirement fund to complement EPF.

7. Dollar cost averaging

Regular fixed-amount investing lowers the average unit cost (section 2.3).

The Disadvantages
1. Loss of control

Investors cannot direct how their money is invested. If the manager follows the prospectus and deed, there is little an investor can do about decisions they disagree with.

2. Fees and charges

Type Examples Who bears it
Direct Sales charge, repurchase charge, switching fee The individual investor, at the time of the transaction

Indirect Annual management fee, annual trustee fee, other fund charges (brokerage, custody, taxes, accounting and valuation, audit, administration) All unit holders, through the fund's NAV

Fees reduce returns: if two schemes perform the same, the one with lower fees produces the better net return.

3. Opportunity cost

An investor might have done better investing directly; the difference is the opportunity cost . But direct investors often forget the risk they took to earn that return: a single direct holding may beat a scheme, but with far more risk than a diversified scheme.

Putting It Together

Benefit Matching disadvantage or limit
Professional management Loss of control over decisions
Diversification and access Ongoing indirect fees reduce returns
Liquidity within 7 business days Units are repurchased at NAV, which may be below cost
Low entry amount Initial sales charge makes short-term trading costly

Consultants should present both columns. Over-selling the benefits without the costs and risks is a common source of complaints (Chapter 4).

Applying It: Two Client Conversations

Scenario 1 – the "I can do better myself" client. Encik Hafiz says his friend made 40% last year on a single small-cap stock, while his equity fund made 9%. The Consultant can acknowledge the opportunity cost argument but should explain the risk side: the friend's whole return depended on one company, and a single-stock investor can lose most of the capital if that company fails. The fund's 9% came from a portfolio of perhaps 50 counters, so a single failure would have had a far smaller effect. The fair comparison is return for the risk taken , not raw return alone.

Scenario 2 – the short-term trader. Puan Lim wants to buy an equity fund with a 5% sales charge and sell it in three months if the market rises. The Consultant should point out that the direct charge alone means the fund has to rise more than 5% before she breaks even, while indirect charges keep accruing in the NAV. Schemes with entry charges suit medium- to long-term holding periods, and frequent buying and selling erodes capital.

Quick Revision List

Benefits (study guide Diagram 2.6): diversification; valuation and liquidity; professional management; investment exposure and lower costs; affordability and ease of purchase; meeting long-term needs; dollar cost averaging.

Disadvantages: loss of control; fees and charges (direct and indirect); opportunity cost.

Numbers to remember: 20–100 counters in a typical equity scheme; repurchase proceeds within 7 business days ; investing can start from RM10 .