Media Releases
Published Date: 14 August 2002

MAS seeks industry comment on proposed cancellation period for unit trusts

Singapore, 14 Aug 2002. The Monetary Authority of Singapore ("MAS") today issued a draft Notice to Managers of Unit Trusts under the Securities and Futures Act (SFA) on its proposal to implement a cancellation period for the purchase of units in unit trusts. 

2   When the Financial Advisers Act (FAA) comes into force in September 2002, financial advisers and the agency sales force of insurance companies will play a more significant role in the marketing and sale of unit trusts.  They will add to the existing unit trust distribution channels, which comprise banks, stockbroking companies and internet portals.  The emergence of a mobile distribution channel, coupled with increased marketing of unit trusts, raises the possibility of pressure selling or even mis-selling.  The proposed cancellation period affords the investor an opportunity to reconsider a hasty investment.  Such a practice already exists in the life insurance industry in Singapore, where the policy holder is given a short time period to examine the terms and conditions of the policy and has the option to terminate the policy during that period.

3   Under the draft Notice,

Fund managers (or distributors who hold units on behalf of investors in nominee accounts, as the case may be) are required to give investors a right to cancel an agreement to purchase units in a unit trust, where the right must be exercised within 7 days beginning from the date the investor signs the agreement;

Where an investor has exercised his right to cancel, the manager (or distributor) is required to refund the investor in full.  However, if the original amount paid by the investor has already been converted into units in a unit trust, the manager (or distributor) is entitled to make an adjustment to the amount to be refunded to reflect any fall in the market value of the units.  In essence, the investor will bear the risk of any adverse market movement but will not gain from any increase in the value of the unit trust;

The fund manager (or distributor) is prohibited from imposing any initial sales charge on the investor and administrative costs incurred as a result of a cancellation should be borne by the fund manager (or distributor); and

During the cancellation period, investors may redeem units in a unit trust in the usual manner and incur the initial sales charge.  Nonetheless, investors are unlikely to do so unless the value of the units has risen by more than the initial sales charge.

4   The proposed cancellation requirements for unit trusts seek to provide a reasonable balance of responsibility among fund managers, distributors and the investing public.  Fund managers and distributors will have the incentive to ensure that their sales and advisory process is fair and proper, and that the product features are properly explained to minimise the possibility of investors changing their minds subsequently.  Having to bear the risk of adverse market movements, in turn, encourages investors to exercise care and discipline in selecting unit trusts and deters them from frivolously exercising their right to cancel. 

5   The draft Notice and a list of Frequently Asked Questions are available on MAS' website;

6   Industry participants have until 2 September 2002 to submit their comments on the draft Notice. They may send their comments to or write to the Securities Regulatory Development Division, Securities & Futures Department.