Affin Holdings Berhad

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Affin Holdings Berhad trades its shares in Bursa Malaysia’s Main Market under the 5185 code. This company owns and operates Affin Bank, one of the banks that provide financial services in the country.

Affin Bank Malaysia

Affin Bank in Malaysia was established in 1975 where it has more than 100 branches across the country. The head office is at Menara Affin along Jalan Raja Chulan. The bank’s parent company is actually the Malaysian Armed Forces Fund Board which owns slightly more than 35% of the stakes while Boustead Holdings has about 20%. The subsidiaries associated to Affin include:

  1. Affin Hwang Capital
  2. Affin Hwang Investment Bank Berhad
  3. Affin Hwang Asset Management Berhad
  4. AIIMAN Asset Management Sdn Bhd

Consumer perception

Affin Bank was previously known as Perwira Affin Bank Berhad where it changed its name to the current one after merging with BSN Commercial (M) Berhad in 2000. It offers services in consumer banking, business banking and Treasury. As a banking brand, Affin has its pool of customers over the years. This sector has been growing tremendously with the bigger names like Maybank and Public Bank making a lot of progress in various areas which Affin Bank would need to continue pushing for.

CONCEPT OF UNIT TRUST

A unit trust fund is a professionally managed, collective investment scheme that pools unit holders’ moneys and invests it towards a specific goal as declared by the investment objective of the scheme. Such a scheme usually aims to provide above-average returns in the form of income distribution and capital growth with reasonable risks, to medium-to-long term investors through investing in a broadly diversified portfolio of stocks and bonds.

Unit trusts are, therefore, long term investment vehicles most suited for investors who can tolerate volatile short-term fluctuations in prices in pursuit of the potential for long-term capital growth, which is associated with riskier equity investments.

In view of its long-term capital growth nature, unit trust investments should be accorded a certain proportion in the total makeup of an investor’s portfolio of personal assets for the possible upsides that it provides on returns.

A unit trust scheme may be illustrated as tripartite relationship between the manager, the independent trustee and unit holders (as shown in the diagram below) governed by a legally binding Deed registered with the Securities Commission Malaysia. The Securities Commission Malaysia regulates the industry as well as the operations and administration of unit trust schemes through the Capital Markets and Services Act 2007, and the Guidelines on Unit Trust Funds.

Unit Trust Tripartite Concept

The deed spells out in detail the manner in which the scheme is to be administered, the valuation and pricing of units, the keeping of proper accounts and records, the collection and distribution of income, the rights of unit holders, the duties and responsibilities of the manager and independent trustee with regard to the operations of the scheme, and the protection of unit holders’ interest.

The manager is obliged under the Deed, Capital Markets and Services Act 2007 and Guidelines on Unit Trust Funds to administer the fund(s)/scheme(s) in an efficient and proper manner that will ensure high standards of integrity and fair dealing in managing the schemes to the exclusive interest of unit holders and investors, to exercise due care, skill and diligence as well as effectively employ the resources and procedures necessary for the proper performance of the scheme(s).

The independent trustee is appointed for the unit holders and acts as the custodian for all the assets of the scheme. The independent trustee, therefore, must act to ensure that the manager adheres strictly to the provisions of the deed; particularly with regard to the creation and cancellation of units, the exercise of investment powers of the fund, collection and distribution of income, proper record keeping of administrative, investment and unit holders’ transactions, and in upholding unit holders’ interest.

FUND PERFORMANCE INDICATORS

In reviewing the performance of unit trust funds, an investor must be familiar with the following definitions of fund returns or performance indicators:

Total Returns – the percentage change in a fund’s price (adjusted for splits and distribution paid out) for the period.

Average Annual Return – The percentage change in a fund’s price (adjusted for splits and distribution paid out) for the period divided by the number of years under review. It is used to compare unit trust returns over periods exceeding one year.

Income Distribution Yield – Distribution paid to unit holders out of the trust’s income (derived from capital gains, dividend and interest / profit income) measured as a percentage of a fund’s NAV.

BENEFITS OF INVESTING IN UNIT TRUST

Besides the potential for capital growth over the long-term period, unit trusts also provides other recognised benefits that makes them attractive relative to other investment avenues. Among them are as follows:

Diversification
Diversification involves the process of spreading risk over a broad portfolio of stocks and bonds in different companies, sectors, countries or regions. This can only be done with substantial amounts of moneys to buy a wide variety of stocks. Unit trusts facilitate the diversification process through providing small investors with an avenue to pool their savings for the purchase of a diversified portfolio of stocks and bonds that will bring returns at lower risks to unit holders compared with investing directly in stock markets.

Professional Management
Unit trusts either engage or maintain in-house professional fund managers with the expertise and resources to manage the assets of the fund. The investors thus benefit from this professional fund management of their investments in the fund at an affordable (shared) cost.

Liquidity
Unit holders may redeem all or part of their units on any business day and have their proceeds mailed to them within 10 days.

Ease of Transactions
Unit trusts do not require cumbersome administrative or paperwork or record keeping on the part of unit holder in managing his investments.

Affordable
As the minimum initial investment amount in most unit trusts is relatively low, they are affordable as compared to direct investment.

Capital Gains
Through participation in securities, unit trust investments provide the opportunity to reap capital growth as part of the return on a unit holder’s investment.

Flexibility
Investors may increase or reduce their investment at any time and switching among Affin’s funds is made easy and free.

Unit Holder Protection
The unit trust industry is regulated by Securities Commission Malaysia to provide clear operational procedures and regulations.

Independent Trustee
Unit holders’ interests are protected by the provision of an independent trustee to hold the Fund’s assets. The Trustee will ensure the Fund Manager acts in accordance with the Trust Deed.

Unit Trust’s RISK FACTORS

Just like any other form of investment, unit trust funds also carry risks. Risk is the uncertainty to which any form of investment may fluctuate in value. One should consider, amongst others, the following when investing in a unit trust fund:

Affected by variable factors and not guaranteed
The performance of a unit trust fund is affected by many variable factors and is not guaranteed. These include overall economic and financial market conditions such as interest rate fluctuation and stability of local currency. While a track record may provide some insight on future performance, it is by no means guaranteed. The prices of units may go down as well as up. Likewise, distribution may vary from year to year depending on the performance of the unit trust fund.

Market Risk
Stock values fluctuate in response to the general market and economic conditions. Such movements in the underlying values of the shares of the investment portfolio will cause the NAV or prices of units to fall as well as rise, and income produced by the fund may also fluctuate.

Specific Stock Risk
This risk is associated to the individual investment in each stock. Any unique activities of the individual companies may cause price fluctuations of that particular stock. This may include dramatic events such as natural disaster, loss in material litigation or bid to a big contract, inability to obtain adequate raw materials or even decline in sales. Hence, when a fund is heavily invested to a particular stock, it may have an impact (adversely or favourably) on the NAV of the fund and ultimately on the prices of units.

Liquidity Risk
Liquidity risk is defined as the ease with which a security can be sold at or near its fair value depending on the volume traded on the market. If a fund has a large portfolio of stocks issued by smaller companies, the relatively lower level of liquidity of these stocks can adversely affect the value of the fund. This is because there are generally less ready buyers of such stocks compared with the stocks of larger and more established companies. The risk is managed by taking greater care in stock selection and diversification.

Interest Rate Risk
As interest rates rise, the value of fixed income securities in a unit trust fund’s portfolio is likely to decrease. Securities with longer duration tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter duration. The interest rate risk here also refers to the general interest rate risk of the country which may affect the value of investment even if the fund (e.g. Shariah based fund) does not invest in interest bearing instruments.

Credit Risk
This risk refers to the possibility that the issuer of a fixed income security will not be able to make timely or full payment of principal or income due on that investment. This may lead to a default in the payment of principal and interest/profit and ultimately a reduction in the value of unit trust funds.

Issuer Risk
The value of each individual security that a unit trust fund invests in may decline for a number of reasons which is directly related to the issuer, such as but not limited to, the management performance, financial leverage, changing industry conditions and changes in consumer tastes and demand.

Loan Financing Risk
Investors should assess the inherent risk of investing with borrowed money, which should include the ability to service the loan repayments and the effect of increase in interest rates on the loan repayments.

Management Risk
Poor management of the unit trust fund may jeopardise the investment of each unit holder. Therefore, it is important to set investment objectives, policies and appropriate strategies before any investment activities can be considered. However, there can be no guarantee that these measures will produce the desired results.

Non-compliance Risk
The operations and administration of the fund by the Manager or its delegate are governed by the fund’s deed, all applicable laws and regulations or internal policies and procedures. Risk may arise when compliance with the provisions of the deed or the applicable law is not ensured. The magnitude of such risk and its impact on the funds and/or unit holders are dependent on the nature and severity of the non-compliance.

Investors are reminded that the above list of risks may not be exhaustive and if necessary, they should consult their adviser(s), e.g. their bankers, lawyers, stockbrokers or independent financial advisers for a better understanding of the risks.

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