How Do I Invest in a Unit Trust in Papua New Guinea?

Buying units is simpler than buying shares on the stock exchange, but the Capital Market Act 2015 builds several checks into the process to protect the investor. Follow them in order.

Step one: check the scheme and its trustee

A unit trust may only be operated by a licensed trustee, and the scheme itself must be approved and registered by the Securities Commission (section 184). The Commission keeps a record of every registered scheme (section 186(2)) and issues the capital market licences that trustees and fund managers must hold (sections 34 and 189). Ask the Commission, or check its published lists, that the scheme is registered, that the trustee named in the offer document holds a current licence to operate a unit trust, and that any fund manager is also licensed. A scheme that fails these tests is operating illegally and the Court may wind it up (section 188). See how to spot an unlicensed scheme.

Step two: read the prospectus and the deed

Units may not be offered to the public unless a prospectus has been registered by the Commission (section 128(1)). The prospectus describes the scheme, its investment policy, its risks, its fees and the people behind it. It must state that it has been approved by the Commission and lodged with the Registrar of Companies, and must also state that approval does not mean the Commission recommends the units or vouches for the statements made (section 131). Material contracts referred to in the prospectus must be kept at the trustee’s registered office for inspection free of charge (section 129(3)).

The trust deed is the contract between you and the trustee, and section 212 makes it legally enforceable between them. It must provide for the price of units, the trustee’s investment powers, how complaints are handled, winding up and the nature of the scheme (section 210(1)). It also sets out the trustee’s fees and any right to withdraw. Ask for a copy. See what a prospectus must contain and what the deed must contain.

Step three: complete the application and pay

The application form must come with the prospectus. A form handed to you on its own, or a request to transfer money before you have seen a registered prospectus, is a breach of section 128 carrying a fine of up to K10 million or ten years’ imprisonment, or both (section 128(7)). Section 128(3) separately forbids application forms for a scheme that has not yet been formed.

Application money is scheme property from the moment it is paid (section 183). The trustee must deposit it into the scheme’s trust account by the next bank business day (section 193(2)), and a fund manager or other contractor may not hold it (section 193(6)). Pay only to the trust account named in the prospectus, never to an individual, and keep the receipt.

Step four: entry in the register of unit holders

Your legal title to the units comes from the register. Section 250 requires the trustee to record each member’s name and address (or, for a corporation, its registered address and registration number), the number of units held and the date the member was entered. The register is prima facie evidence of what it records (section 250(4)). You may ask for an extract showing your name, address, units and the amounts paid, and the trustee must send it within 21 days of your request on payment of a reasonable fee (section 252(2)). On demand the trustee must also supply copies of all entries in its books relating to your transactions, and you may inspect contract notes free of charge (section 195). Check your first statement against what you paid.

Who may invest

The Act does not restrict who may be a member. In practice unit holders include:

• Individuals, from a Port Moresby retiree investing a lump sum to a public servant saving monthly.
• Companies and incorporated associations, which hold units in their own name and vote through an appointed representative (section 238).
• Churches and incorporated land groups investing surplus funds or royalty income; a landowner company may itself become a trustee if licensed, as the Lihirian Investment Fund shows.
• Superannuation funds, which have historically been the largest holders.
• Children, through a parent or other adult holding as trustee. Section 255(2) allows units held on trust to be marked in the register, with the trustee’s consent, to identify the trust.

Joint holdings are permitted; notice goes to the first-named holder (section 219(2)) and only that holder’s vote counts if the joint holders disagree (section 240).

If a supplementary prospectus is issued

If, after you apply but before units are issued to you, the trustee lodges a supplementary or replacement prospectus, section 135 gives you a way out. The issuer must give you written notice that the new prospectus has been approved, send you a copy, and allow you at least 14 days from receipt to withdraw your application (section 135(2)). If you withdraw, your money must be refunded immediately (section 135(3)). Failure carries the same K10 million or ten-year penalty (section 135(7)). See supplementary prospectuses.