Investing in global funds
Monday March 19, 2007
The Securities Industry Development Centre (SIDC) continues its weekly educational series by giving an overview of what global funds are all about.
SINCE the liberalisation of Bank Negara’s foreign exchange administration rules on April 1, 2005, Malaysia has seen the launch of global funds by several unit trust management companies.
Malaysian investors now have the opportunity to invest in securities traded on foreign markets through investment vehicles in the form of global funds.
Below are some frequently asked questions on global funds.
Q: How do I start investing in a global fund?
A: Investors may go to any authorised unit trust management companies offering funds which invest in foreign markets.
Q: Where can I look for information on the fund?
A: Generally, information like fund objectives, risks and potential returns are available in the fund’s prospectus. Investors can also obtain guidance from licensed investment advisers.
Q: How about the fees and charges? Is it similar to a local fund?
A: There are no extra fees involved for investing in a global fund. The charges are the same as those for local unit trust funds. (However, management fees for global funds tend to be higher, ranging from 1.5% to 1.85%. But the sales charges are the same as local funds.)
Q: How do I monitor these funds?
A: Investors can check the unit prices in all major local newspapers. However, in certain circumstances due to different time zones of the foreign markets (where the funds have invested in), the price information may not be current (two days late).
Q: Is the cooling-off period the same as local funds’?
A: The cooling-off period is similar to that of local unit trust funds, i.e six business days after the purchase date.
The table shows the differences between global and local funds in terms of their investment objectives, risks and benefits.
There are several categories of global funds:
·Equity: A unit trust fund that invests primarily in shares/stocks traded on foreign stock exchanges.
·Bond/Fixed income: A bond/fixed income fund is defined as a fund that invests primarily in debentures in foreign markets.
·Balanced fund: A unit trust fund that invests in a balanced mix of shares/stocks and debentures in foreign capital markets.
·Feeder fund: A unit trust that invests all its assets in just one collective investment scheme abroad.
·Funds of funds: A unit trust fund that invests all its assets in other collective investment schemes. To qualify for this category, the fund must invest in a minimum of five collective investment schemes (local and abroad).
·Real estate investment trust (REIT): A unit trust fund that invests in local and foreign real estates.
Investor must not confuse “fund category” with “fund type” because they have two different meanings. To illustrate:
Fund name: AQS Global Equity Fund
Fund category: Equity
Fund type: Growth
What does this actually mean? The fund seeks to provide capital growth and some income in the medium to long-term (fund type) by investing in a portfolio of global securities (equities). (fund category)
Be it a local fund or global, investors must always read the prospectus. The prospectus will provide information about the fund that could assist investors in making an informed investment decision. It is better to read than to weep.
·The SIDC, established in July 1994, is the training and education arm of the Securities Commission.