4.7 Distributable Income, Distributions and NAV, "Buying" a Distribution and Taxation

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

4.7 Distributable Income, Distributions and NAV, "Buying" a Distribution and Taxation

Key Takeaways Explain This Topic AI

The Scheme Provider determines, with the Trustee's approval, the amount of a scheme's income to distribute, and there is no obligation to declare a distribution.

A distribution reduces the NAV per unit by the amount distributed, whether it is paid in cash or reinvested as additional units.

Scheme Providers must not sell investments solely to realise capital gains for distribution, and the source of distributions must be disclosed.

Encouraging investors to buy units just before the ex-distribution date to "capture" a distribution is not in the investor's best interests.

PRS distributions must be paid in the form of units, and the FCE study guide states that PRS distributions reinvested in units are not liable to tax.

Last updated: October 2026

Who Decides the Distribution

The Scheme Provider decides, with the Trustee's approval , how much of a scheme's income to distribute. There is no obligation to declare one, though the fund's objective, investor expectations, competitors' rates and bank deposit rates all influence the decision.

The amount available can include:

• dividend income, interest income and other income received;
• realised capital gains from selling investments;
• after deducting expenses and tax; and

for variable-price funds, capital, under conditions such as transparency about the effect on NAV.

The current UTF Guidelines allow distributions only from realised gains or realised income , with a variable-price fund permitted to distribute out of capital if the deed allows it and it is properly disclosed. A prospectus for such a fund must warn that capital will be eroded and that this may continue until capital is depleted.

Factors the SC expects to be considered

Distributions should reflect the fund's objective : income funds should generally distribute more than growth funds. The provider should consider:

• total returns (income and capital growth) for the period;
• the scheme's income for the period;
• whether there is enough cash flow to pay; and

the stability and sustainability of the distribution.

The Trustee must state in the annual report that the distribution reflects the fund's objectives.

Guarding against misleading "income"

Providers must not sell investments just to realise capital gains for a distribution.

The source of distributions must be disclosed in the financial statements.

Consultants should explain that growth funds normally pay low distributions. An investor who lives off distributions that are really capital gains or capital may not realise their capital is being eroded.

PRS points

Two PRS funds can have the same average total return but different dividends; a member wanting some liquidity might prefer the higher payer.

PRS distributions must be paid in units , not cash, and can only be withdrawn under PRS withdrawal rules (generally at retirement), much like EPF dividends.

Distributions Reduce NAV

A distribution hands part of the NAV back to investors, so the NAV per unit falls by the amount distributed . If units are given instead of cash, NAV per unit still falls because more units share the same pool.

Study guide example (distribution paid in units):

• Item Before After
• Units held by Member QQQ 800 1,000
• NAV per unit RM2.00 RM1.60
• Value of holding RM1,600 RM1,600

Distribution value = 800 × RM0.40 = RM320; units received = RM320 ÷ RM1.60 = 200; new holding = 1,000 units. The member is no better or worse off . If the provider does not distribute, the unit price simply rises with NAV, since NAV should always include all accrued income.

"Buying" a Distribution

Where the unit price is fixed at RM1.00, providers often use the unit-day method (time apportionment), so each investor's entitlement reflects how long they held units.

Where entitlement is based on units held on the ex-distribution date , an investor who buys just before that date receives the full distribution for the period. But the unit price falls by the distribution amount the next day, so the investor has merely turned capital into income, and may even be worse off if tax is due. A Consultant who uses an upcoming distribution to rush investors into buying is not acting in their best interests .

Taxation of Distributions

The study guide describes this process:

The unit holder includes the taxable portion of the distribution (paid or reinvested) in the annual tax return, with other income.

A tax credit for tax already paid by the fund is set off against the total tax payable, and any excess can be refunded by the Inland Revenue Board.

The Malaysian tax voucher issued by the Trustee supports the claim. (The study guide refers to the individual's return as Form B; individuals without business income file Form BE.)

Reading a tax voucher

• Voucher item Meaning
• (1) Taxable income Part of the distribution that is taxable
• (2) Malaysian tax Malaysian tax payable on the taxable income
• (3) Foreign tax Tax already deducted abroad
• (4) Non-allowable expenses Fund expenses that are not tax-deductible
• (5) Non-taxable income Income not subject to tax
• (6) Distribution equalisation An amount set aside so new and existing investors receive a flat rate per unit
• (7) Net distribution payable (1) − (2) − (3) − (4) + (5) + (6)

The study guide's sample: 40.00 − 11.20 − 0.00 − 25.00 + 302.50 + 22.54 = RM328.84 net.

Note

Tax treatment depends on the fund's income and on current law, and much fund income reaches individual investors as non-taxable income. Consultants should rely on the tax adviser's report in the prospectus and the voucher rather than assume a rate.

PRS: the study guide states that distributions of a PRS fund paid as units and reinvested in the PRS are not liable to tax .