Study guide
4.5 Financing the Purchase of UTS: Process, Safeguards and the Risk Disclosure Statement
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
4.5 Financing the Purchase of UTS: Process, Safeguards and the Risk Disclosure Statement
Key Takeaways Explain This Topic AI
Loan financing is allowed for the purchase of UTS but not for PRS.
The margin of finance must not exceed 67% of the amount invested, which the study guide explains as borrowing up to twice the investor's own deposit.
Consultants must not, directly or indirectly, encourage the sale of units through loans, and promotional materials with return projections based on loan schemes are not allowed.
The original signed Unit Trust Loan Financing Risk Disclosure Statement is attached to the application and filed by the UTMC, and a copy goes to the investor.
If the loan-to-valuation ratio deteriorates, the lender may make a margin call, and failure to meet it can lead to the units being force-sold.
Last updated: October 2026
Why Financing Is Treated with Caution
Some investors borrow to buy UTS units, hoping returns will exceed the borrowing cost. The study guide highlights two dangers:
Leverage magnifies losses as well as gains.
Consultants may be motivated by the extra commission on a bigger, loan-financed purchase.
Loan financing is not allowed for PRS.
The Process Step by Step
Step What happens
1. Loan application Before the unit application goes to the UTMC, the investor applies for a loan. The lender assesses creditworthiness and the security (usually the units) and decides how much it will lend against them.
2. Approval and payment Most lenders pay the loan directly to the UTMC , not to the investor, so the money is used as stated. The borrower signs the loan contract (interest rate, repayment terms).
3. Units issued The UTMC processes the application; the lender receives the unit certificate or confirmation that its interest is protected and holds it as security. The investor receives a statement of units bought and cost.
4. Margin calls If the loan-to-valuation ratio worsens (for example in falling markets), the lender may require a margin call : a cash payment or extra collateral.
5. Repurchase When units are sold, proceeds usually go directly to the lender ; after the loan is repaid, the balance goes to the investor.
- The SC's Safeguards
- Two separate transactions
The Guidelines on Marketing and Distribution of Unit Trust Funds require UTMCs to ensure Consultants do not, directly or indirectly, encourage the sale of units through loans . The sale of units and the loan are two totally separate transactions , so promotional materials containing projected returns based on a loan scheme are not allowed .
Full and frank disclosure
Consultants must give factual information only, omit no material fact, and clearly explain the risks of leverage so the investor understands them before borrowing.
The Unit Trust Loan Financing Risk Disclosure Statement
Requirement Detail
Signature The investor signs the statement, acknowledging that the risks of borrowing to buy UTS have been explained and understood
- Original Attached to the application and filed by the UTMC for record and inspection
- Copy A duplicate is forwarded to the investor
- Lender queries The statement encourages the borrower to ask the lender about anything unclear
Protection It also protects the UTMC and Consultant if returns disappoint or the investor struggles to repay for reasons outside their control
The statement's heading warns: "Investing in a unit trust fund with borrowed money is riskier than investing with your own savings." Its four risks:
The higher the margin of finance , the greater the potential loss as well as gain.
Variable-rate repayments become more onerous if interest rates rise (not applicable to a fixed rate for a fixed term).
Margin calls may require extra collateral or payments on top of instalments; failure can lead to units being force-sold .
Returns are not guaranteed and not earned evenly; selling at the wrong time can mean a loss even if the investment did well before.
The 67% margin of finance
The UTF Guidelines (paragraph 8.21) cap the margin of finance at 67% of the amount invested , and UTMCs must ensure it is not breached. The study guide explains this as letting an investor borrow up to twice their own deposit : Loan Total amount invested ≤ 67 % \frac{\text{Loan}}{\text{Total amount invested}} \le 67\% Total amount invested Loan ≤ 67%
- Study guide illustration Own money Loan Total invested Loan share
- Chapter 4: deposit-based RM10,000 RM20,000 RM30,000 66.67%
- Chapter 7A: investment-based RM33,000 RM67,000 RM100,000 67%
Both examples sit within the cap. In exam questions phrased as "twice the deposit", use the 2:1 ratio; in questions phrased as a percentage of the amount invested, use 67%.
The Ethics Link
The FIMM Code of Ethics prohibits Distributors and Consultants from encouraging investors to invest through loan financing , and requires them to explain the risks of investing through loan financing when describing a scheme's features (Chapter 5). Chapter 7A covers typical loan terms and the risks of borrowing in more depth, and the study guide suggests that regular savings may be a more prudent alternative.
Applying It
A Consultant tells a client: "Borrow RM60,000, add RM30,000 of your own and you will make 12% a year on RM90,000 instead of RM30,000." Three problems:
It encourages loan financing, which the Code of Ethics prohibits.
It projects returns based on a loan scheme, which promotional material must not do.
The loan would be 66.7% of RM90,000, so it fits the 67% cap, but the client has not been told the risks or signed the risk disclosure statement.