National Certificate in Insurance Administration
NQF Level 3
Unit Standard 8999: Outline the structure of the unit trust industry
Credits: 2
Notional Hours of Learning: 20
Learner Material
This outcomes-based learning material was developed by IISA
with funding from INSETA in March 2003.
The material is generic in nature.
It’s purpose is to serve as a guide for the further development and customization of company-specific, learner-specific
and situation-specific learning interventions.
18/06/03
Page 2
Contents
Topic Page
Unit Standard 3
Learner material 5
Process/Activities 5
Examples: Guide for Assessment of Portfolio 7
Additional Notes/Resources 10
1. TITLE: Outline the structure of the unit trust industry
2. UNIT STANDARD NUMBER: 8999
3. LEVEL ON NQF: 3
4. CREDITS: 2
5. FIELD: Business, Commerce and Management Studies
SUB FIELD: Finance, Economics and Accounting
6. ISSUE DATE:
7. REVIEW DATE:
8. PURPOSE:
This unit standard provides a broad introduction to the unit trust sector. It builds on the unit standard describe unit trusts as an investment
The qualifying learner is capable of:
· Identifying the main elements in the structure of a unit trust company and describe the structure of such a company.
· Explaining how the Unit Trust industry is regulated and know the main points of the legislation that apply to the industry.
9. LEARNING ASSUMED TO BE IN PLACE:
There is open access to this unit standard. Learners should be competent in Communication and Mathematical literacy at Level 2.
10. SPECIFIC OUTCOMES AND ASSESSMENT CRITERIA:
SO / Description / Assessment Criteria1. / Identify the main elements in the structure of the unit trust industry / 1.1 The management company, trustee, asset manager are named as the main elements of the industry with examples of each.
1.2 The relationship between the elements is described according to their purpose statement portfolio.
1.3 The purpose of a trust deed is explained and the main provisions of a trust deed are identified with reference to a trust deed for a selected unit trust fund.
2. / Describe the structure of a unit trust management company / 2.1 The structure of a unit trust management company is illustrated graphically.
2.2 The functions of a unit trust management company are identified with reference to a specific management company.
3. / Explain how the unit trust industry is regulated / 3.1 The Association of Unit Trusts (AUT) is identified as the industry’s representative body and its functions are explained in relation to the regulation of the industry
3.2 The role and functions of the Financial Services Board are explained as they apply to the unit trust industry.
3.3 Reasons are given to explain why the industry is so highly regulated with examples of the consequences of an unregulated environment.
4. / Identify legislation that applies to the unit trust industry / 4.1 The Unit Trust Control Act no 54 of 1981, Unit Trust Control Amendment A no 12 of 1998. And the Collective Investment Schemes Bill/Act are named as the legislation that controls the unit trust industry and the main points addressed in the Acts are noted in a mind map.
4.2 The basic regulations are listed that apply to a fund mandate.
4.3 Amendments are identified that have been made to the different legislation in the last two years.
4.4 The manner in which industry regulation protects the investor is understood and explained with reference to unit trusts control requirements, legalities governing unit trusts, minimum cash holdings, limitations on equity, gold weighting, money market limitations, statutory holdings, trustee and management company relationship, all securities registered in the name of the trust, asset swop limitations, regulations relating to pension funds, market capitalisation and derivative exposure.
11. ACCREDITATION AND MODERATION:
This unit standard will be internally assessed by the provider and moderated by a moderator registered by INSQA or a relevant accredited ETQA. The mechanisms and requirements for moderation are contained in the document obtainable from INSQA, INSQA framework for assessment and moderation.
12. RANGE STATEMENT:
The typical scope of this unit standard is:
· The main elements in the industry: management company, trustee and asset manager.
· Legislation: The Unit Trust Control Act, the Unit Trust Control Amendment Act, the Collective Investment Schemes Bill/Act
13. NOTES:
CRITICAL CROSS-FIELD and DEVELOPMENTAL OUTCOMES:
This unit standard supports in particular, the following critical cross field outcomes at unit standard level:
1. Learners can use visual and mathematical communication skills when graphically depicting the structure of a unit trust management company and using a mind map to depict the legislation that controls the unit trust industry.
2. Learners are able to demonstrate the world as a set of related systems by recognising that the Unit Trust Control Act no 54 of 1981 and the Unit Trust Control Amendment Act No 12 of 1998 control the unit trust industry.
3. Learners are able to explore a variety of strategies of learning more effectively by using the mind map to depict legislation affecting the unit trust industry.
ACTIVITIES
Specific Outcome 1:
Identify the main elements in the structure of the unit trust industry
Action 1 / Obtain information from the additional notes attached to this guide, regarding the following terms, which are the main elements of the industry.
· The management company
· Trustee
· Asset manager.
In a table format, write each term down, with its definition and an example of each.
Specific Outcome 1:
Action 2 / From the information obtained for activity 1, write a paragraph which describes the relationship between the three elements, according to their purpose statement portfolio.
Specific Outcome 1:
Action 3 / · Obtain information about the purpose of a trust deed, from the additional notes attached to this guide.
· Explain in a short sentence, what the purpose of a trust deed is.
· Identify the main provisions of a trust deed. In a paragraph of between 5 to 7 lines, write notes about the main provisions of a trust deed, for a selected unit trust fund
Specific Outcome 2:
Describe the structure of a unit trust management company
Action 4 / Obtain information from your resources listed above.
Draw the structure of a unit trust management company.
Specific Outcome 2:
Action 5 / Telephone/email/fax a specific management company and request information about their functions.
Write notes from their response in your own words, explaining the functions of a unit trust management company.
Specific Outcome 3:
Explain how the unit trust industry is regulated
Action 6 / Obtain information about each of the following and write a paragraph of between 5 to 8 lines about:
· The Association of Unit Trusts (AUT), as the industry’s representative body.
· The AUT’s functions, in relation to the regulation of the industry.
· The role and function of the Financial Services Board as they apply to the unit trust industry.
Specific Outcome 3:
Action 7 / From your resources above, write short notes giving reasons why the industry is so highly regulated.
Specific Outcome 3:
Action 8 / Write a paragraph of between 5 to 7 lines about the consequences of an unregulated environment. Give examples.
Specific Outcome 4:
Identify legislation that applies to the unit trust industry
Action 9 / Obtain copies of the Unit Trust Control Act no 54 of 1981, the Unit Trust Control Amendment Act no 12 of 1998, and The Collective Investment Schemes Act. These are the pieces of legislation that control the unit trust industry.
Identify the main points of each Act, and note these in a mind map.
Specific Outcome 4:
Action 10 / From resources given above, list the basic regulations that apply to a fund mandate.
Specific Outcome 4:
Action 11 / Invite a fund manager to speak to your group about the amendments to the legislation directly affecting unit trusts over the past two years, as well as the issues to be addressed in Activity 12.
Make notes of the presentation, and write sentences identifying which amendments have been made to the legislation.
Guide for assessment of portfolios
SPECIFIC OUTCOME 1
Identify the main elements in the structure of the unit trust industry
SPECIFIC OUTCOME 2
Describe the structure of a unit trust management company
SPECIFIC OUTCOME 3
Explain how the unit trust industry is regulated
SPECIFIC OUTCOME 4
Identify legislation that applies to the unit trust industry / § Information is obtained about the following terms:
· The management company
· Trustee
· Asset manager.
§ A table is drawn, defining each term, with an example of each.
§ A paragraph is written, which describes the relationship between the elements, according to their purpose statement portfolio.
§ From information obtained about the purpose of a trust deed:
· A short sentence is written explaining the purpose of a trust deed.
· The main provisions of a trust deed are identified, for a selected unit trust fund.
§ The structure of a unit trust management company is graphically illustrated
§ Information is requested via telephone/email/fax from a specific fund management company about their functions.
§ Notes, explaining the functions of a unit trust management company, are written, based on their response.
§ Information is obtained about each of the following, and a paragraph of between 5 to 8 lines is written about each:
· The Association of Unit Trusts (AUT), as the industry’s representative body.
· The AUT’s functions, in relation to the regulation of the industry.
§ The role and functions of the Financial Services Board as they apply to the unit trust industry.
§ Short notes are written, giving reasons why the industry is so highly regulated.
§ A paragraph of between 5 to 7 lines, is written about the consequences of an unregulated environment, with examples.
§ Copies are obtained and placed in the PoE of the Unit Trust Control Act no 54 of 1981, the Unit Trust Control Amendment Act no 12 of 1998, and The collective Investment Schemes Act.
§ A mind map is drawn identifying the main points of each Act.
§ The basic regulations that apply to a fund mandate are listed.
§ Sentences are written, identifying which amendments have been made to the legislation over the past two years.
§ Explanatory notes are written about the manner in which industry regulation protects the investor, with reference to the following:
· unit trusts control requirements
· legalities governing unit trusts
· minimum cash holdings
· limitations on equity
· gold weighting
· money market limitations
· statutory holdings
· trustee and management company relationship
· all securities registered in the name of the trust
· asset swop limitations
· regulations relating to pension funds
· market capitalization
· derivative exposure. / § The explanation and examples not recorded
§ The concept and illustration are not recorded
§ Terms and explanation are not recorded
§ Explanation and provisions not recorded
§ Illustration not recorded
§ Functions of fund management company not recorded
§ Explanation not recorded
§ Information and descriptions not recorded
§ Role and functions are not recorded
§ Explanation not recorded
§ Consequences are not recorded
§ Acts not obtained
§ The concept and illustration are not recorded
§ List not recorded
§ Classification is not recorded
§ Explanatory notes not recorded
ADDITIONAL NOTES
Use additional notes attached to the unit standards Explain basic transactions in the unit trust industry (9001).
In addition, the following will assist understanding.
GLOSSARY
The Fund
The fund is the money that all of the investors have paid into the unit trust. Their money is pooled together, and then the fund or portfolio managers invest it on the unit holders’ behalf
1. The Investors
As the name suggests, these are the people or companies who have chosen to put their money into the unit trust in the hope of obtaining a good return on their investment. The unit trust in which they choose to invest should have been chosen carefully to ensure that there is a match between the investor’s reason for investing in the unit trust and the unit trust itself. For example, it would be unsuitable for a pensioner with a very limited income to invest his savings in a unit trust that carries a high level of risk. He cannot afford to lose his hard-earned money, so he would be better off investing in a low risk and relatively secure unit trust fund.
2. The Fund Mandate
This is the legal contract that clearly states what proportion of a fund will be invested in a particular investment product. This provides a guide to the fund for investors and fund managers.
3. The Portfolio
The portfolio describes the spread of investments in a particular unit trust fund. You will remember that you compared two investment portfolios in the first unit standard. An example of a portfolio would be:
CPL Investment Portfolio
§ 35% in deposits,
§ 35% in equities,
§ 20% in bonds, and
§ 10% in cash.
4. The Asset Manager
The asset manager may be an employee of the Management Company or s/he may be an employee of a separate asset management company. His or her responsibility is to invest the funds of the unit trust. The asset manager employs professional portfolio managers, fund managers and analysts to ensure that the unitholders’ money is invested profitably. The money also has to be invested in accordance with the fund mandate. The responsibilities of an asset manager include:
§ Managing the fund according to the mandate;
§ Making investment decisions on behalf of the unitholders, and
§ Keeping the management companies informed of current market trends.
5. The Management Company
This is the unit trust Company that administers the unit trust fund. It is sometimes called a Manco in the industry. The functions of a management company include:
§ Product development (the product in this instance being funds);