A Unit Trust Scheme (UTS) is a type of Collective Investment Scheme. It is defined under the Investment and Securities Act (ISA) as “any arrangement made for the purpose, or having the effect, of providing facilities for the participation of the public as beneficiaries under a trust in profits or income arising from the acquisition, holding, management or disposal of securities or any other property whatsoever”. The purpose of a UTS is to pool the funds for the investors’ benefit. In Nigeria, a UTS must be registered with the Securities and Exchange Commission (SEC).
Several parties are involved in a UTS and these include the Fund Manager (who manages the fund), the Holder (who is the investor/beneficiary who has acquired units in the UTS), the Custodian (who has custody as a bailee of the securities or certificates issued in the investor’s name) and the Trustee (in whom the property for the time being subject to any trust created in pursuance of the scheme is vested in accordance with the terms of the trust). Other professional advisers include Solicitors, Auditors, reporting, Accountants and Stockbrokers.
The rules governing the operation of a UTS are contained in a Trust Deed which is usually prepared by the solicitor. The Trust Deed is an agreement drawn up between the trustees or custodian and the manager for regulating the operation of the UTS. It is an important document which spells out the rights, duties, relationships and limitation of the trustees and the manager amongst others, principally aimed at protecting the unit holders. It is important to note that unit holders are also bound by the Deed which contains their legal rights and obligations.
The assets of the UTS are held in the name of the trustees on behalf of the Unit Holders. This is a safeguard which ring fences the assets of the UTS from that of the manager, so that the unit holders are protected in case the manager folds up. Although the assets are registered in the name of the trustees, the beneficial ownership of these assets remains in the hands of the unit holders.
UTS as a financial product affords marginal investors the rare opportunity of having expert management of their portfolios by sophisticated institutions who are better placed to select appropriate investment mix that would magnify returns whilst reducing the incidence of management costs per investor.