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Idea of the Week: A Checklist for Illegal Investment Schemes [12 May 2017] May 12, 2017
Idea of the Week: A Checklist for Illegal Investment Schemes [12 May 2017]
Author : Tan Wei Yine


Idea of the Week: A Checklist for Illegal Investment Schemes [12 May 2017]

Over the recent weeks, local headlines have been swarmed with news of collapse of several “investment” schemes, causing a huge loss of monies among people who have participated in these schemes. In view of the recent events, investors are now more concerned on the legal aspects of their investments, and how is their money being handled during an investment process. In this Idea of the Week, we will shed light on some of the areas investors should look out for prior to investing their hard-earned money.

Guaranteed Double Digit Returns? There Is No Such Thing As A “Free Lunch”

People are often attracted by lucrative guaranteed returns offered by the illegal investment schemes, which promise investors with up to double-digit monthly return via “cutting-edge” investment strategies that allows the scheme to profit under various form of market conditions.

However, it is important for investors to note that regardless of asset classes, be it stocks, derivatives or even the fixed income segment, there is no one-size fits-all investment technique that works for everybody and works all the time. Reason being that there are a huge variety of market participants in the market, each with different objectives as well as investment strategies that allows the market to have a constantly evolving dynamic. Hence, it is impossible for any parties to guarantee any sort of return for investors, as it is not possible to predict market movements with a 100% certainty. In regards to these lucrative monthly returns, we have put together some historical annualized return figures across various market segments to allow investors to compare against a double-digit monthly return offered by those illegal schemes (see Table 1), where the latter seems too good to be true.

Table 1: Historical annualised return across various assets.

 
Index
1-Yr (%)
3-Yr* (%)
5-Yr* (%)
10-Yr* (%)
15-Yr* (%)
S&P 500 Index
17.9
10.5
13.7
7.1
7.6
FBMKLCI Index
9.0
1.2
5.6
6.3
8.9
JP Morgan Aggregate Bond Index
-1.8
0.0
0.6
3.6
5.1
Bloomberg Commodity Index
-1.8
-15.2
-9.9
-7.0
-1.1

Source: iFAST compilations. Data as of 30 April 2017. Returns in local currency terms with any dividends reinvested. *Annualised Return

The only legal form of guaranteed return available in the local market would be the fixed deposit return (averaging around 3.1% at this juncture), which is offered by the banks to individuals who deposit their money with the bank for a fixed period of time. In Malaysia, depositors are protected by the Deposit Insurance System (DIS) run by Perbadanan Insurans Deposit Malaysia (PIDM), where it offers an insurance protection limit up to RM 250,000 per depositor per member bank.

Where Are Your Monies Parked?

Participants that are involved in the illegal schemes often transfer their monies directly to the company’s account, which will be commingled with the company’s house assets. Therefore, in the event of collapse of the company or the investment schemes, the interest of the participants are not safeguarded by any parties nor regulations.

One of the key areas investors should look out for prior to investing is that the asset management companies should have arrangement with independent parties to handle and administer investors’ assets in interests of investors. These independent parties, often acting as assigned trustee, has to ensure that the system, procedures, and processes employed by the fund management company are adequate to make sure that the assets are correctly valued and priced. In Malaysia, an assigned trustee must be registered under the Trust Companies Act 1949 or incorporated pursuant to the Public Trust Corporation Act 1995 by Securities Commission.

See: SC Guideline for Collective Investment Schemes

For an investor that have chosen to invest in a unit trust (e.g. Fund House A – MY Equity Fund) via Fundsupermart (“FSM”), rest assured that internal procedures are in place to handle clients’ assets in accordance with the regulations. FSM has set up Client Trust Accounts with licensed banks in Malaysia to deal with clients’ monies according to Section 111 of the Capital Markets Services Act 2007 (CMSA). This is to ensure that clients’ assets are segregated from FSM’s house assets and handled in the manner allowed by the rules and regulations. All units, on the other hand, will be registered in the name of a separate entity, namely iFAST Nominee Sdn. Bhd. Despite the nominee structure that FSM operates, essential information of the underlying investors will be shared with the respective fund houses to ensure that all units held in FSM pooled nominee account can be properly accounted for. Should FSM ceases as a business concern, with investor’s permission, all assets will be returned back to investor or transferred to another Institutional Unit Trust Advisers (IUTA).

Read: Fundsupermart FAQ: Security and Safety

License and Regulations

For any individuals or companies that are involved in matters relating to the activities, markets and intermediaries in the capital markets, and for matters consequential and incidental thereto, these parties have to be licensed and regulated by the SC under Capital Markets and Services Act 2007.

Prior to entering any investment schemes, investors should always ensure that the companies are licensed by the SC. For fund management companies that distribute their own products, they will also be required to obtain license from the Federation of Investment Managers Malaysia (FIMM). Investors should ensure that the fund that has been proposed or recommended is also approved by the SC. Lastly, prior to investing, investors should also be sure that the person that he is dealing with is an authorised person by FIMM to distribute unit trust products.

See also: SC List of Licensed Intermediaries | SC List of Launched Funds in Relation to Unit Trust Funds

Fundsupermart is a division of iFAST Capital Sdn Bhd. iFAST Capital Sdn Bhd has a Capital Markets Services Licence (CMSL) from the Securities Commission to deal in unit trusts, offer investment advisory services and deal in Private Retirement Scheme. It is also registered with the Federation of Investment Managers Malaysia (FIMM) as an Institutional Unit Trust Advisers (IUTA). iFAST Capital Sdn Bhd is a subsidiary of iFAST Malaysia Sdn. Bhd. (formerly known as iFAST-OSK Sdn. Bhd.), which is wholly owned by iFAST Corporation Ltd.

Conclusion

All in all, it is important for investors perform their due diligence prior to investing their hard-earned money to avoid being the victims of the abovementioned illegal investment schemes. While Fundsupermart does not provide investors with “get-rich-quick” schemes, we do offer investors with a wide pool of authorized unit trust funds to choose from, where some quality funds have been able to deliver consistent returns over the past few years. Apart from that, Fundsupermart also furnish investors with in-house research materials as well as portfolio construction tools to better-equip investors with the necessary investment knowledge in constructing their very own investment portfolios. For starters, they may refer to our recommended portfolio as a guideline, or simply contact our friendly Client Investment Specialist team!

Quick Link: Open a Fundsupermart Account


This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus, product highlight sheet (PHS), and if necessary, consulting with financial or other professional advisers. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Amongst others, investors should consider the fees and charges involved. The relevant prospectuses have been registered and lodged with the Securities Commission. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV. Where a unit split is declared, investors should be highlighted of the fact that the value of their investment will remain unchanged after the distribution of the additional units. All applications for unit trusts must be made on the application form accompanying the prospectus. The prospectuses and PHS can be obtained from Fundsupermart.com. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.