3.5 Portfolio Constraints: Permitted Investments, Liquidity, Borrowing and Exposure Limits

FIMM Combined Examination FCE

Track your progress as you read

Finished sections get a check mark.

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

3.5 Portfolio Constraints: Permitted Investments, Liquidity, Borrowing and Exposure Limits

Key Takeaways Explain This Topic AI

UTS and PRS may invest in transferable securities, cash, deposits and money market instruments, units of other CIS, derivatives and other securities, and PRS funds may also invest in real estate.

Securities lending and repurchase transactions are allowed only for efficient portfolio management, and the fund manager must hold at least 100% collateral.

A unit trust fund may borrow cash only temporarily to meet repurchases, for no more than one month, up to 10% of NAV, and only from financial institutions under the current UTF Guidelines.

In the study guide's example, an equity UTS with RM10 million NAV can hold up to RM1 million (10% of NAV) of one company's shares and up to RM1.5 million (15% of NAV) in all securities of that issuer.

A breach caused by market movements, repurchases, capital changes or rating downgrades need not be reported to the SC but must be rectified within three months, while other breaches must be reported within seven business days.

Last updated: October 2026

The General Principle

The UTF and PRS Guidelines require a fund's assets to be relevant to and consistent with its investment objective , and to provide a prudent spread of risk . Specific constraints then shape:

• the portfolio objectives that can be set;
• how the portfolio is built; and

how it is run day to day (for example when units in circulation change).

Permitted Investments

UTS may invest in PRS may invest in

Transferable securities (equities, sukuk, bonds and other securitised debt, warrants) Transferable securities (same)

• Cash, deposits and money market instruments Cash, deposits and money market instruments
• Units or shares of CIS Units or shares of CIS
• Derivatives Derivatives
• — Real estate
• "Other securities" (anything else permitted) "Other securities"

There are further limits on unlisted securities and foreign markets . A fund may only invest in what its deed authorises , and the prospectus or disclosure document may add restrictions.

Liquidity

Investors must receive repurchase proceeds quickly, so the SC requires Scheme Providers to keep arrangements to meet repurchase requests . The right level depends on the repurchase arrangements, expected redemptions and the fund's objectives. Liquidity can come from cash, short-dated fixed income, money market instruments or short-term borrowing . Repurchased units are cancelled by the Trustee for cash from the fund so investors can be paid promptly.

Securities Lending and Repurchase Transactions

Allowed only for efficient portfolio management , which means the transaction must:

be economically appropriate and cost-effective;

aim to reduce risk, reduce cost or generate extra capital or income at a level of risk consistent with the fund's profile and diversification rules;

be fully covered to meet any obligation to pay or deliver; and

have its risks captured by the fund's risk management policies.

The fund manager must have at least 100% collateral , with no uncollateralised counterparty exposure.

Borrowing and Lending

Borrowing : a Scheme Provider may borrow, subject to conditions, for no more than one month so the fund can meet redemptions without selling assets in a way that hurts remaining investors. The current UTF Guidelines (R7-2024) add that the borrowing must be temporary, must not exceed 10% of NAV when incurred, and must come only from financial institutions .

Wholesale funds (for sophisticated investors) may borrow to invest as well as to meet redemptions. Gearing magnifies gains in rising markets and losses in falling ones.

No lending : apart from repurchase transactions and securities lending, none of the scheme's cash or investments may be lent, and the scheme may not guarantee or become liable for anyone else's debts.

Concentration and Exposure Limits

The SC caps a fund's exposure to a single issuer , a class of securities or a group of companies . The study guide's examples:

• Example Limit Applied to an equity UTS with NAV of RM10 million
• Ordinary shares of one issuer 10% of NAV Up to RM1 million of ABC Berhad shares

All securities issued by one issuer 15% of NAV A further RM0.5 million of ABC's fixed income securities (RM1.5 million in total)

Concentration in an issuer's share capital 10% of the issuer's ordinary shares If ABC has 10 million shares, the fund may hold at most 1 million

Both tests apply at once: holding 1 million ABC shares must also stay within the 10%-of-NAV value limit. SC limits apply per fund , so a Scheme Provider running several funds is encouraged to set internal limits on aggregate exposure .

Breach of Investment Limits

The Scheme Provider must comply with limits at all times using up-to-date values. The current UTF Guidelines (paragraphs 6.47 to 6.49) set two tracks:

Type of breach Requirement

General breach Notify the SC within seven business days , with the steps taken to rectify it and prevent recurrence

Breach caused by appreciation or depreciation of investments, repurchases or payments out of the fund, a change in an investee company's capital, or a credit-rating downgrade or cessation No need to report to the SC , but rectify as soon as practicable within three months

Extension of the three-month period Allowed if in unit holders' best interests and the Trustee consents , with at least a monthly review by the Trustee

Note

FIMM's study guide states both the seven-business-day notification and the three-month rectification rule without spelling out which breaches fall under each. The UTF Guidelines make the split shown above: passive breaches (caused by market movements and similar events) use the three-month track.

Worked Check

A fund's NAV is RM40 million. It holds RM3.8 million of XYZ shares (9.5% of NAV). XYZ's share price jumps and the holding becomes RM4.4 million while NAV rises to RM41 million, which is 10.7% of NAV. The breach was caused by appreciation , so the manager does not report it to the SC but must bring the holding back within 10% of NAV within three months, unless the Trustee agrees to an extension.