Shorter pay-out periods for unit trust redemptions and Charging of marketing and promotion expenses to unit trust funds disallowed
Singapore, 28 December 2001. The Monetary Authority of Singapore (MAS) today issued two Practice Directions (PDs) relating to the Handbook on Unit Trusts: PD 10 recommends when payments should be made to investors who redeem units in unit trusts, and PD 11 disallows managers to charge marketing and promotion expenses to unit trust funds. The PDs take into account feedback from the industry.
Pay-out period for redemptions (PD 10)
2 At present, there is no uniform period among fund managers to pay redemption proceeds of unit trusts to investors. With the introduction of PD 10, investors will benefit from a standardised, shorter pay-out period.
3 Under PD 10, MAS encourages managers to pay redemption proceeds as soon as practicable after the receipt of a redemption request. In any case, proceeds should be paid within 4 business days for bond funds and 6 business days for other funds. Proceeds are considered paid on the day the account of either the investor or the CPF-agent bank of the investor is credited or a cheque is mailed to the investor.
4 For funds that invest in markets with a longer settlement cycle, MAS would allow managers to set a longer pay-out period, which will be required to be disclosed in prospectuses.
5 If changes in settlement systems or technological advancements shorten the time taken for redemption of unit trusts or settlement of sales of their underlying investments, MAS would re-examine the pay-out periods with a view to shortening them further.
6 PD 10 takes effect on 1 April 2002.
Marketing and promotion expenses (PD 11)
7 Currently, the Handbook is silent on the treatment of marketing and promotion expenses. PD 11 is introduced to make clear to managers that they are not allowed to charge marketing and promotion expenses to unit trust funds. Such expenses include those on advertisements in the media, mailers and fund fact sheets but exclude those for the preparation, printing, lodgement and distribution of prospectuses or profile statements. The PD is in line with the practice in some established markets such as Hong Kong and the UK. This practice is also consistent with the treatment of similar expenses in the case of investment-linked insurance policies in Singapore.
8 MAS emphasised that PD 11 does not prohibit fund managers from advertising or promoting their funds. They can continue to do so provided they defray such marketing and promotion expenses from their management fees, which are required to be disclosed to investors at the point of sale.
9 During the consultation process, fund managers pointed out the need for unit trust advertising in the absence of an active sales force like that for insurance products. But they noted that such a channel for unit trust distribution would develop when financial advisers are permitted to sell unit trusts with the introduction of the Financial Advisers Act in the first half of 2002.
10 PD 11 takes effect on 1 July 2002.
11 A copy each of PDs 10 and 11, which are available at MAS' website.