The regulations regarding Customer Money are laid out in the Securities Act. The Securities Act states that all money received from customers must be paid “into a specially created customer bank account which is segregated from any account holding money belonging to the licensee”.
To comply with these Rules, Laurence Paul operates special Client Accounts at Standard Chartered and Stanbic Bank.
The Act further goes on to state that withdrawals may be made from the “customer bank account only if:
It is not customer’s money
It is properly required for payment to and on behalf of a customer; or
It is properly transferred into another customer bank account or into a bank account in the customer’s own name.”
The Securities Act defines the role of a Custodian as a company that takes into its “control or custody” the assets of a certain investment. That means that the Custodian holds onto the assets on behalf of investors.
In Zambia, the Securities and Exchange Commission has licensed two banks to carry out custodial work. These are Standard Chartered and Stanbic Bank, who operate special subsidiary companies (in order to provide separation from the main bank assets).
Where custodians are used, a special bank account is set up with the chosen bank in the name of the Client. Signing powers on that account would be held by the bank’s custody department. The role of Laurence Paul is to instruct the custodian as to which assets to invest in and all assets are in the name of the Client. Payments for charges have to be requested from the Custodian, who will debit the customer account.
Thus direct control of the client’s assets always remains with the Custodian. Reports are made regularly to the Asset Manager and the client.
Thus the Client can be rest assured that Laurence Paul will not make any unauthorised use of the customer money.
Further, the Securities and Exchange Commission carries out regular on-site inspections of all licensees’ accounts and financial transactions, with a special emphasis on instances of comingling customer moneys.
Basically, unit trusts are pooled investments, managed by professionals who have knowledge about how the market works. It is not just your money alone that gets invested. The common pool of money invested by many investors like you is managed by the unit trusts’s investment manager. The manager then uses sound judgement and market understanding to invest the total amount in different financial securities like shares, debentures and money market instruments. Profit generated through these investments is then distributed among investors in proportion to the investments made by them.
The performance of your unit trust is reflected in its Net Asset Value (NAV), which is declared at the end of every business day. The fund management company also has a legal obligation to publish reports on the performance of their unit trusts. Apart from the NAV, the ratio of the unit trusts returns / yields are tracked across time periods. Apart from these, various studies are published by financial newspapers and research agencies which provide insights on the performance of funds as well as their ranking in terms of performance. These could be looked at to track performance and you could even compare fund performance with that of other funds in the same category to judge how well it is doing.
The Scheme Information Document of the unit trust you have invested in will have contact details of the fund management company. If you are not satisfied with the response from the fund management company, you can approach the Securities and Exchange Commission of Zambia (SEC). SEC will then take up the matter with the company and follow up till it is resolved.
Unit Trusts are a vital tool to ensure your financial well-being. They help you to get better returns even from relatively smaller investment amounts, and are quite flexible in nature. Whether you want to invest smaller amounts at regular intervals or a lumpsum at once, you will find a unit trust product suitable for your needs. With options like SIP (Systematic Investment Plan) and SWP (Systematic Withdrawal Plan), unit trusts can help you plan for short-term as well as long-term goals and financial liabilities.
Expert Guidance – Your funds are invested by a professional manager who studies financial markets, analyses trends and understands the potential of companies in different sectors. So you can be assured that your money is being invested thoughtfully, to maximise returns.
Returns and Risk analysis – When you invest in a single security, your profit depends on how that company fares. However, unit trusts invest in a group of companies, so the performance gets averaged. Even if one of them does not do well, performance of the other companies makes up for it. And because unit trusts invest a large pool of resources together, even the returns are significantly higher than individual investments.
Availability of money – If you invest in an open ended unit trust scheme, your money continues to earn returns and is still available for use when you need it. You can withdraw your money any time you want to. If you have invested in a close ended scheme, you can sell off the units, at current market rates.
Affordability – Unit trusts are affordable financial investment tools as you can invest in them and create wealth even if you have relatively smaller amounts of money to begin with.
Transparency – When you invest in a unit trust, you have a right to know every detail of where and how your money is being invested and can track the performance of the fund on a periodic basis.
Tax Benefits – There are some unit trust schemes whose returns, in the form of dividends, are tax free. So you can invest and create wealth without needing to pay a tax on that income. However, since this may not be the case for all schemes, it is important to understand the tax benefits of a fund before you invest in it.
Regulated by SEC – All unit trusts are regulated by the Securities and Exchange Commission of Zambia. They function in accordance with the provisions and regulations that protect the interests of investors and prohibit fraudulent and unfair practices.
There are three ways in which you can classify unit trusts, according to their structure, their objective and the sectors they invest in. Here’s a quick round-up of unit trust categories for all three classifications.
Open Ended Schemes: Schemes without a fixed maturity period, that let you subscribe for or redeem units any time. They offer the benefit of liquidity.
Close Ended Schemes: Schemes with a fixed maturity period, which are open for subscription for a specified duration during the launch, and allow you to invest in them from 3-10 years. After the launch, interested investors can buy or sell units of the scheme on stock exchanges where they are listed. As an exit route, closed unit trusts necessarily have to offer either a repurchase at market value, for a specific time frame or allow trading of units on stock exchanges.
Interval Schemes: A combination of open ended and close ended schemes, interval schemes are open for sale and repurchase only during a specific duration.
Equity Schemes: Schemes that invest in equities and are designed to offer maximum growth over medium and long term, ideal for investors who are in their prime earning years. These schemes are comparatively high risk, and offer investors options like capital appreciation and dividend option.
Income Schemes: These schemes invest in fixed income securities, are less risky, and a good option for investors who want to generate steady income streams.
Balanced Schemes: Investments are done in equity and debt securities to generate regular income and moderate growth. They invest in both equity and debt, and their NAVs are likely to be less volatile than those of pure equity schemes.
A Systematic Investment Plan (SIP) is a plan that lets you invest specific amounts of money at regular intervals to gradually build a large amount. By investing in a SIP, your investments get disciplined. Also, since you are investing regularly, the setbacks to your investments when markets are low get balanced by your investments’ gains when the market is high. And as you gain returns and keep investing higher amounts during the investment tenure, your returns keep multiplying and growing.
Your risk-taking capacity, age, financial position, income and liabilities will determine the ideal debt and equity investment proportion for you. You can assess these using different tools and calculators as well as get a financial advisor to guide you. Many times, your unit trust agents and distributors could help you out as they are more knowledgable on the funds and market performances.
- As a start, read the objective of the fund and see that is matches your investment goals.
Then check your scheme document for details on how the investment is being planned, on what basis are the securities being decided and what the overall logic and thought process behind the fund’s investment strategy is.
Once you are convinced of the strategy, track the past returns of the fund to see how the strategy has worked and how the fund has performed in different market situations. While this does not guarantee future performance, it gives you a fair estimate.
Unit Trusts are not without risks, and fund managers will often diversify their portfolio to minimise risks and maximise returns. Read the scheme information document for information on risks.
Diversify your investment portfolio and don’t invest all your money in a single fund.
When choosing different funds to invest in, allocate your money in growth as well as income schemes, based on your age, income and risk.
While determining which scheme to invest in, the NAVs and the resulting number of units available for a certain price are irrelevant to the decision. Always opt for a scheme which is professionally managed and belongs to a unit trusts whose schemes have performed well in the past. Number of units that you will be able to buy should not be a consideration factor because it is possible that two schemes with the same rates of return will offer you the same amount of returns even if the number of units purchased is different. Remember that if a new scheme offers units at a price of ZMW. 10 and an existing one offers units at ZMW. 90, your decision to invest should still be based on the professional management of the fund and the experience and qualifications of the fund managers.
NAV is the measure of performance of an individual scheme of a unit trust. It is essentially, the market value of the securities held by the scheme. The NAV per unit is the market value of all the securities held by the scheme divided by the number of units. Example, if the market value of securities is ZMW 200, and the unit trust has issued 10 units of ZMW 10 each, the NAV of each unit is ZMW 20. Since the market value of securities changes every day, so does the NAV of funds. Depending on the type of scheme, it is mandatory for the NAV to be disclosed daily or weekly.
The price or NAV that you pay for each unit, when you invest in an open ended unit trust scheme is called the purcahse fee of the scheme. The price or NAV at which you sell your investment units, and the open-ended unit trust scheme buys them back from you is called the redemption fee.
Yes. Fund managers do have the flexibility to change the percentage of investments in debt and equity instruments, as a short term measure, to maintain the NAV and ensure good performance of the fund. However, if the change in asset allocation percentage is going to be permanent, it is mandatory to make an announcement about it and give investors an option to exit the scheme without paying an exit-load.
In case a scheme winds up, the unit trust will pay out a sum based on prevailing NAV, after adjusting for the expenses. You will also receive a report on the winding up, which will include all the necessary details.