Portfolio Investment Management

This report provides an overview of the unit trust industry in Malaysia and describes two different types of unit trust funds, Fixed Income Funds and Money Market Funds. The report analyses the progress of the Fixed Income Fund and Money Market Funds for previous years by analyzing the data of CIMB-Principal and Kenanga Growth, Malaysia. The report also highlights the differences between the two types of unit trust funds. Get expert study material and solved assignments on Desklib.

Running Head: PORTFOLIO INVESTMENT MANAGEMENT
Portfolio Investment Management

PORTFOLIO INVESTMENT MANAGEMENT
Table of Contents
Introduction of the unit trust industry in Malaysia.................................................................................2
Fixed Income Funds..............................................................................................................................4
Money Market Funds............................................................................................................................6
Difference between Fixed Income Funds & Money Market Funds.......................................................8
Summary...............................................................................................................................................9
References...........................................................................................................................................11
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Introduction of the unit trust industry in Malaysia
A unit trust can be demarcated as a form of joint speculation (collective investment)
which is established under a trust deed. In a unit trust, a group of investors capitalizes into a
common fund which is further managed by a unit manager. The success rate of a unit trust
totally relies on the proficiency of the managers who manage the trust and experience of the
company (Abdullah & Abdullah, 2009). Some of the common types of investments which are
taken by a unit trust are securities, secured loan, properties, and cash equivalents. Unit trust
funds aim to attract investors such as retail investors, commercial investors and numerous
groups, through these stockholders basket of investments are formed, and these baskets are
called portfolio (Ontario Securities Commission, 2019).
The report familiarizes with the position of unit trust industry of Malaysia and
describes two different types of unit trust funds, which are Fixed Income Funds and Money
Market Funds. Furthermore, differences between the two types of unit trust funds will be
highlighted in the report. The report analyses the progress of the Fixed Income Fund for
previous years by analyzing the data of CIMB-Principal which is one of the leading financial
institutions of Malaysia. Similarly, the progress of Money Market Funds has been portrayed
in the report by analyzing the data of Kenanga Growth, Malaysia.
Unit trust was pioneered in the Malaysian marketplace in 1959 by a company named
Malyan Unit Trust Ltd. Later, the company changed its name to Singapore Unit Trust
Limited and after some time the company became a member of PNB (Permodalan National
Berhad) Group after being acquired by PNB International Ltd in the year 2000. PNB is now
considered as Malaysia’s leading asset manager. Development of unit trust fund in Malaysia
could be demonstrated in 4 phases (Mohammed, et. al., 2018).
From the year 1959 to 1999:
- Slow growth and lack of public interest
- Only 5 unit trust was developed
- The industry was controlled by several parties
- State government sponsored the unit trusts (Ripain, et. al., 2018).
From the year 1980 to 1990
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- Entry of government in the unit trust industry
- Observed a good public response
- 11 funds were launched
From the year 1991 to 1999
- Industry growth elevated
- Unit trusts were marketed
- Greater product innovation
- Influence of financial crisis (Ripain, et. al., 2018).
From the year 2000 till current date
- Strong growth in the year 2000
- Unit trust companies started launching offshore funds
- The industry growing till date
According to the statistics, by 31st May 2017, 528,996,000 units of the fund were
being circulated in the marketplace by unit trust industry; unit trust industry in Malaysia
continuously keeps increasing and demand for unit fund among populaces have also been
showing remarkable growth (Zumbo, 2013).
Today, there are more than 43 unit trust management firms in the Malaysian
marketplace. New companies are emerging in this industry: in the year 2012, more than 53
companies were registered in this industry (Ripain, et. al., 2018). According to the prediction
by Malaysia’s Security Commission, by the year 2020, the asset value of Malaysia’s unit trust
industry will raise up to $258.50 billion (Abdullah & Abdullah, 2009)
.
There are different types of trusts in the industry; each of them is categorized on the
basis of tenancy, risks, returns and different type of investment structures (Low, 2012). The
report will provide a portrayal of two types of unit trusts and differences between them.
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Fixed Income Funds
Fixed income funds are unit trust funds which allow an individual to invest and he/she
would be provided with returns at fixed intervals, whether it quarterly, half-yearly or
annually. The interest and type of return totally rely on the type of plan one has joined; the
fixed income fund is a typical unit trust fund which meant for the salaried professional
(Coverfox, 2019).
Features of Fixed Income Funds
 It provides a regular source of returns
 One who invests in Fixed Income Funds would get higher interest that he/she would get in
bank deposits.
 One of the prime benefits is, the amount of tax will be low on returns
 An investor can move their funds in accordance with their requirements; the fact is tacit that
Fixed income funds provide liquidity
 The fixed income funds are sustained by efficient fund managers in order to review the
portfolio and to make sure that the funds are adaptable and answering positively to the
current market situations.
 One of the prime advantages of Fixed Income Funds is, it can survive and be stable even at
the time of severe market disturbances (Coverfox, 2019).
The composition of Fixed Income Funds
 Fixed income funds focus to attain more income on the fund on a regular basis through the
percent of interest that the fund grosses.
 These types of funds are not always open; they are considered as closed-eye funds, a
subscription can only be made in the NFO period.
 These funds have specified tenure and maturity date.
 As mentioned above, the funds invested are locked up to a specific time, due to which
amount could be efficiently managed with time.
 Investments are only made to those assets who have the best probability of growth.
 In Fixed Income Funds, managers have plenty of time to create a long-term strategy to grow
the investments (Ayadi & Kryzanowski, 2011)
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Performance of Fixed income funds of the past few years
The performance of Fixed Income Funds of CIMB Principal Asset Management in
Malaysia has been portrayed through the figure presented below. CIMB –Principal stands
among one of the leading principal asset management companies in Malaysia, the company is
recognized for dealing widespread range of units of trust funds. CIMB-Principal is co-
operatively possessed by CIMB Group, which is the second leading financial service in
Malaysia (Thune, 2019).
Figure 1: Progress rate of CIMB-Principal's Fixed Income Fund
Source – (CIMB-Principal, 2019)
The growth of Fixed Income Funds has been demonstrated with the help of the figure
presented above; in the first year, the growth was 4.81% and in Quant shop MGS Index the
growth was 3.69%. Since then, the growth of the unit fund was increasing at a constant pace.
The growth rate at 31st Jan 2019 since the beginning is 240.57% and 173.44 % (CIMB-
Principal, 2019).
Rendering to the facts and figures, it can be comprehended that Fixed Income Funds
gains substantial growth per year, a return is definite in this type of investment. The
investment time horizon recommended by the company is, a minimum of 3 years so that the
long term strategy could be planned by the managers (Fidelity, 2019).
The Fixed Income Fund is appropriate for the investors who:
 Look for the investment plan which is less volatile and accept returns that could oscillate with
time.
 Wants to get returns within a fixed interval; quarterly, half-yearly or annually
 Who seeks to invest with long term plan
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 Retired personnel who seek to get a regular income (Coverfox, 2019).
Money Market Funds
Money market funds are short-term investments invested in only selected instruments
which have assured growth and reputation in the marketplace. Money market funds provide
decent returns within 1-year validity. For investing in Money Market Funds, investors do not
have to wait till new offers are open; it is an open-ended scheme through which money is
invested in superior instruments which are safe and provide good returns. One can also invest
money in Money Market funds by making short-term planning such as, paying school fees or
storing as an emergency fund as an investment (Moneycontrol, 2018).
Features of Money Market Funds
 Investments in Money Market Funds cannot be made online; individuals would have to make
investments through an authorized representative, and the representative would issue a
certificate of the instrument to the investor. (Trading also takes place over the telephone with
e-mail as written confirmation)
 Involvement of various type of instruments
 Liquidity is high as compared to other unit funds
 Investments can be made in bulk orders
 The existence of good competition
 Options for low initial investments are available (Ontario Securities Commission, 2019).
Composition of Money Market Unit Funds
 Comprises various sub-markets
 The sub-markets are:
o Treasury Bill Market
o Commercial Bills Market
o Acceptance Market
o Call Money Market
Performance of Money Market unit Fund in previous years
The performance of Money Market Unit Fund is demonstrated with the help of figure
which demonstrates the growth of Money Market Funds of Kenanga Growth fund from the
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year 2016 to 2019. Kenanga Growth is one of the prestigious organizations in Malaysia
which provides long term investment and growth plans to the investors and invest the money
in Malaysian equities. The organization offers numerous financial products to investors with
diverse plans (Schmidt, et. al., 2016).
Figure 2: Growth of Money Market Fund of Kenanga Growth Malaysia
Source – (Morningstar, 2019)
From the figure, the fact can be comprehended that initially, the growth was slow,
then in the mid of 2017 and 2018, the performance of Money Market Unit Funds was at its
peak. By the end of 2018, the market conditions were not appropriate for the fund to rise, so
the graph shows a sudden fall at the end of the year 2018 (Morningstar, 2019).
The Money Market Fund is suitable for investors who:
 Wish to make short term investments with low-risk factor
 For the person who only wants liquid cash in return
 Are about to get retired and looking forward to saving amount for something
 Look for a high level of liquidity
Therefore, investing in Money Market Funds is safe and investors could get returns
within a short time period such as 3 months or a year. In this, there is no such risk factor, so
investors would not have to be concerned about the loss (Kacperczyk & Schnabl, 2013).
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Difference between Fixed Income Funds & Money Market Funds
One of the prime benefits of Fixed Income Fund is the fixed securities provide some
exclusive benefits for growth investing using the equities. Even though returns are not up to
the mark, but the fact is also beneficial that the one can expect a stable portfolio balance and
the capital will always be preserved. Investors can rely on their investments made in Fixed
Income Funds, as there is no risk; at some point of times, financial agencies offering gets
backed by deposit insurance agencies to ensure that the funds are safely returned back to the
investors even at the time of bankruptcy. Therefore, Fixed Income Funds are mostly preferred
by retired personnel or people who wish to get more interest paid for their principal amount
and also want their principal amount to be safe (Johnston, 2019).
Money Market Unit Funds provides high liquidity with low risk as compared to the
other unit funds; even though there is a low risk in Money Market Funds, but the return rate
is much better than the Fixed Income Funds. Numerous benefits are provided to the investors
of Money Market Funds which are not commonly found in other unit fund types. In Money
Market Fund, liquidity and yield are higher than the Fixed Market Unit Funds. In Money
Market Funds, investments are only made to the securities which have the highest credit
ratings; this is to ensure the safety of the investment made in the unit fund. These are
preferred by people who want to yield a good return for their principal amount and they can
afford to take only little risks (Pocket Sense. 2019).
Some of the prime differences between Fixed Income Unit Fund and Money Market Unit
Fund are mentioned below.
 Discoursing about the Money Market Fund; the money market fund is fluid and the investors
can easily get their money out whenever required.
While in Fixed Income Unit Funds, investments are made through bonds which could rise in
value with time (WallStreetMojo, 2019).
 An investment made in Money Market Funds goes into the investments which have low risks
factors, such as exchange commissions and securities.
The risk factor is high in Fixed Income Unit Funds, as investments are made in the form of
bonds; an economic breakdown will affect the investment if the bonds belong to other
countries (Mutualfunds, 2019).
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 The opportunity of growth in Money Market Unit Fund is low as compared to Fixed Income
Funds; the opportunity for growth in this market is low. The prices of share will not elevate
above one dollar.
In Fixed Income Unit Funds, the chances of growth are high; bonds get diversify across
numerous investments from commercial bonds to government bonds. Therefore, high
amounts of return are expected in Fixed Income Funds (fin24, 2018).
Summary
A unit trust fund could be demarcated as a pool of investments made by several
investors with an objective (primarily to get returns); the pool of investments are managed by
a fund manager who uses the money to invest in various schemes in order to get a better
yield. There are different types of unit trust funds categorized on the basis of return, validity,
risk, liquidity, and so on. Investors have to make a vice decision before making any
investments in the marketplace. The Malaysian unit trust industry is stable and it is
performing better year after year, encouraging many investors in the Malaysian marketplace.
The unit funds in Malaysia are fulfilling the needs and demands of the marketplace; the
market is fulfilling for the people who are looking for wealth formation and diversification of
their portfolio. Several offshore funds have also been investing in Malaysian unit trust
industry, widening the chances of increasing the returns for the principal amount. Two types
of unit funds were considered in this report, which is Fixed Income Unit Fund and Money
Market Unit Fund.
As deliberated with the help of this report, Fixed Income Funds are the type of unit
funds which are primarily invested in Government Securities and money market instruments
such as fixed deposits. The prime purpose of this fund is to endow the investors with income
at regular intervals. The Fixed Income Unit Funds carries low risk, and it does not emphasize
much on the capital growth of the investment made by the investor. This type of unit fund is
preferred by personnel who are going to retire, or if an individual has some needs that have to
be fulfilled in a short period of time.
Whereas investments made in Money Market Funds are invested in short-term
deposits to the banks or any low-risk financial institutions. The investments in Money Market
Funds are made only in liquid cash and financial institutions which have the highest credit
ratings and reputation in the marketplace.
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Through the report, the differences between the Fixed Income Fund and Money
Market Fund could be comprehended. By analyzing CIMB-Principal’s progress of Fixed
Income Fund, the fact could be comprehended that market call for this type of fund has been
stable and it is gradually elevating. Similarly, by analyzing Kenanga Growth’s progress of
Money Market Fund from previous years the fact can be comprehended that market call for
this fund has decreased as compared to the year 2016 and 2017.
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References
Abdullah, N. A., & Abdullah, N. A. H. (2009). The performance of Malaysian unit trusts in
domestic versus international markets. Asian Academy of Management Journal of
Accounting and Finance, 5(2), 77-100.
Ayadi, M. A., & Kryzanowski, L. (2011). Fixed-income fund performance: Role of luck and
ability in tail membership. Journal of Empirical Finance, 18(3), 379-392.
CIMB-Principal. (2019). CIMB-Principal Bond Fund. Retrieved from http://www.cimb-
principal.com.my/cimbFunds_CIMB-Principal_Bond_Fund.aspx
Coverfox. (2019). Fixed Income Funds. Retrieved from https://www.coverfox.com/personal-
finance/mutual-funds/fixed-income-funds/
Fidelity. (2019). Fixed Income & Bonds. Retrieved from https://www.fidelity.com/fixed-
income-bonds/overview
fin24. (2018). The fundamental difference between money market and income unit trusts.
Retrieved from https://www.fin24.com/Money/Money-Clinic/Investments/the-
fundamental-difference-between-money-market-and-income-unit-trusts-20180817
Johnston, K. (2019). Money Market Funds Vs. Fixed Income Funds. Retrieved from
https://budgeting.thenest.com/money-market-funds-vs-fixed-income-funds-
29524.html
Kacperczyk, M., & Schnabl, P. (2013). How safe are money market funds?. The Quarterly
Journal of Economics, 128(3), 1073-1122.
Low, S. W. (2012). Market timing and selectivity performance: a cross-sectional analysis of
Malaysian unit trust funds. Prague economic papers, 2, 205-219.
Mohammed Kamil, N., Subramaniam, M., Ali, H. E., Musah, M. B., & Alex, A. (2018).
Factors influencing the selection of unit trust funds among Malaysian retail
investors. Journal of Islamic Accounting and Business Research, 9(2), 155-170.
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Moneycontrol. (2018). What are Money Market Mutual Funds? Consider these 5 important
factors before investing. Retrieved from
https://www.moneycontrol.com/news/business/mutual-funds/what-are-money-market-
mutual-funds-consider-these-5-important-factors-before-investing-2605031.html
Morningstar. (2019). Kenanga Growth. Retrieved from
https://my.morningstar.com/ap/quicktake/overview.aspx?
PerformanceId=0P00008MEM
Mutualfunds. (2019). What’s the Difference Between Fixed Income and Bond Funds.
Retrieved from http://mutualfunds.com/bond-funds/what-s-the-difference-between-
fixed-income-and-bond-funds/
Ontario Securities Commission. (2019). 7 Common types of mutual funds. Retrieved from
https://www.getsmarteraboutmoney.ca/invest/investment-products/mutual-funds-
segregated-funds/7-common-types-of-mutual-funds/
Pocket Sense. (2019). Money Market Funds Vs. Fixed Income Funds. Retrieved from
https://pocketsense.com/money-market-funds-vs-fixedincome-funds-2823.html
Ripain, N., & Ahmad, N. W. (2018). An Overview of Unit Trust Funds in Malaysia. Reports
on Economics and Finance, 4(3), 117-123.
Schmidt, L., Timmermann, A., & Wermers, R. (2016). Runs on money market mutual
funds. American Economic Review, 106(9), 2625-57.
Thune, K. (2019). Basics on Fixed Income Funds. Retrieved from
https://www.thebalance.com/basics-on-fixed-income-funds-2466771
WallStreetMojo. (2019). Types of Mutual Funds. Retrieved from
https://www.wallstreetmojo.com/types-mutual-funds/
Zumbo, F. (2013). Malaysia: Unit trust industry in double-digit growth mode. Retrieved from
http://investvine.com/malaysia-unit-trust-industry-on-the-way-to-double-digit-growth/
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