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In the case of Fund A as table 1 illustrates, the NAV per unit is RM1.00 and if the Fund is charging 10%, then the selling price is calculated as RM1.10. The fund manager can then adjust the bid price accordingly at his discretion.

Under the new guidelines, the bid and offer price is determined by the management company and disclosed in the prospectus. The fund manager from time to time may adjust the prices as he or she thinks fit.

Table 2. Sample of Bids and Offers

















Let us take the following scenarios:

Scenario 1

When Fund Y is performing well in a bull market, new money normally exceeds redemption.

In this case, fund manager is charging a maximum of 10% to the NAV (RM1.00) in order to reap higher sales revenues. The manager prices the bid price at 5 cents less the selling price. Thus, the bid and offer prices are published as RM1.05 and RM1.10.

On the surface, by merely studying the spread between the bid and offer, you may think that entry cost to the fund is only 5 cents. However, from the investors' point of view, the fund will only grow from the NAV which is at RM1.00. Your capital or income growth will only be generated from RM1.00 but the price that you pay is RM1.10.

Scenario 2

When Fund X and Z are facing a huge redemption.

In order to avoid loss or even reap profits during bad times, the fund manager will adjust the bid price at or below the NAV. In this case, the manager for Fund Z decides to adjust the bid price at RM0.95. The manager buys back the units from you at RM0.95 and sells back at the NAV to the trustee;

Bid or redemption price is at NAV RM0.95
Cancellation price of a unit is at NAV RM1.00

Profit on units cancellation to manager RM0.05

By knowing the NAV of a particular Fund, you will know how much the manager is actually charging. In other words determining the value you are receiving and the true service cost to enter the Fund.

Thus, the disclosure of the NAVs by various unit trust companies as required by the new regulation is regarded as very healthy for the local unit trust industry as a whole.

By looking at the NAV published, you could be surprised to find that the Fund you bought is charging 10% and has not been performing well as compared to another Fund whose bid price is fixed at the NAV.

Clearly, the new guidelines to require the disclosure of the NAV is positive as not only will it help to increase the competitiveness and professionalism of the unit trust industry it guards your interest as an investor.

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Reproduced with permission from Normandy Services Sdn Bhd, Tel:603-4695560 Fax:603-2945561