A unit has no fixed face value. It is worth a proportionate share of whatever the fund owns, and that figure changes daily as share prices, property values and interest rates move. The Capital Market Act 2015 does not fix a pricing formula; it requires the trust deed to do so and then polices how the trustee applies it.
The deed must set the price
The trust deed “shall make adequate provision for the consideration that is to be paid to acquire an interest in the scheme”.
This is the first item in the list of compulsory deed contents, and the Securities Commission may refuse to register a scheme whose deed does not meet it (section 186(1)(c)). “Adequate provision” means a method, not a number. A typical deed states that the issue price of a unit is the net asset value per unit on the valuation day, plus any entry charge, and that the withdrawal price is the net asset value per unit less any exit charge. Because the pricing clause is part of the deed, changing it requires a supplementary deed approved and registered by the Commission (section 211). The deed is enforceable between the trustee and the members (section 212), so a trustee that issues or redeems units at the wrong price is in breach of contract as well as of its statutory duties.
Net asset value explained
Net asset value (NAV) is the market value of all the scheme property, which section 183 defines to include contributions, borrowings, property acquired with them and income derived from them, less the scheme’s liabilities such as accrued fees, tax and borrowings. Divide the result by the number of units on issue and you have the NAV per unit.
| Item | Example (kina) |
|---|---|
| Listed shares at last sale price | 60,000,000 |
| Commercial property at independent valuation | 30,000,000 |
| Bank deposits and bills | 12,000,000 |
| Less accrued fees, tax and other liabilities | (2,000,000) |
| Net asset value | 100,000,000 |
| Units on issue | 50,000,000 |
| NAV per unit | K2.00 |
The figures are illustrative only. A deed may add a small spread between the entry and exit price to cover the cost of buying or selling investments, so that existing members do not bear the transaction costs of those joining or leaving.
The trustee must value regularly
Section 191(1)(h) requires the trustee to “ensure that the scheme property is valued at regular intervals appropriate to the nature of the property”. A fund of listed shares and bank deposits can be valued every business day from published prices. A property trust holding office buildings cannot; annual or half-yearly independent valuations are the norm, with the deed stating how often. Breach of section 191(1) is an offence carrying a fine of up to K10 million or ten years’ imprisonment, or both (section 191(4)), and the Commission may check compliance at any time (section 196). A stale valuation harms members directly: if assets are carried above their true worth, new investors overpay and withdrawing investors take out more than their share, leaving those who remain to absorb the loss. The duty to treat members of the same class equally (section 191(1)(d)) is the reason accurate pricing matters.
Three ways to value an interest
Section 242 sets out how the value of an interest in a registered scheme is worked out. The section appears in the voting provisions, where the value matters for special resolutions passed by 75 percent of the value of units voted (section 2), but it is the Act’s clearest statement of valuation method:
- Listed units: the last sale price on the stock exchange on the trading day before the valuation day (section 242(a)).
- Unlisted units in a liquid scheme with a withdrawal provision: the amount that would be paid under the deed’s withdrawal provision on the business day before (section 242(b)). This is the exit price.
- Any other case: the amount the trustee determines in writing to be “the price that a willing but not anxious buyer would pay for the interest” on the business day before (section 242(c)).
The third method applies to non-liquid schemes such as property trusts. It places the valuation in the trustee’s hands, subject to its duties of honesty, care and good faith under section 191. See liquid and non-liquid schemes.
The buy-back price rule
Part VII of the Act prohibits insider dealing, and section 307(4) would in principle catch a trustee redeeming units from a member while holding price-sensitive information about the fund. Section 321 excepts redemptions made under a buy-back covenant in the deed, but only where the price is “required by the trust deed to be calculated, so far as is reasonably practicable, by reference to the underlying value of the assets, less any liabilities” of the scheme, less a reasonable charge for purchasing the units. The Act therefore assumes that redemption prices track net asset value, and a deed that lets the trustee redeem at some other figure loses the protection of the exception.
Before investing, find the pricing clause in the deed and the valuation policy in the prospectus. Check how often the fund is valued, who values illiquid assets, what spread sits between the entry and exit prices, and whether the trustee may suspend pricing. Compare the published unit price with the NAV per unit in the latest audited accounts; a large unexplained gap is a warning sign. See fees and withdrawing.
Sources
- Capital Market Act 2015 — ss 2(1) (“special resolution”), 183, 186, 191, 196, 210(1)(a), 211, 212, 242, 307(4), 321
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.