Not every pooled fund is the same. A fund that keeps investors’ money in bank deposits carries very different risks from one that trades derivatives, and a fund that promises to return the capital is different again. The Capital Market Act 2015 recognises this by requiring every trust deed to state “the specific nature of the scheme” and by listing the types that are “applicable under this Act”.
The statutory list
Subject to the requirement in section 210(1)(e) that the deed state the specific nature of the scheme, “the following are types of schemes, which are applicable under this Act: (a) unit trust; and (b) property trusts; and (c) managed funds; and (d) hedge funds; and (e) derivatives funds; and (f) money market funds; and (g) guaranteed funds; and (h) capital protected funds; and (i) umbrella funds; and (j) other funds that the Commission may prescribe by publication in the National Gazette”.
The Act does not define any of these terms. Their meaning comes from ordinary capital market usage, from the trust deed the Commission approves under section 208, and from any guidelines the Commission issues under section 189(3). The table below gives the generally accepted meaning of each.
Each type explained
| Type | What it invests in | Typical risk and liquidity |
|---|---|---|
| Unit trust | A general pooled trust; in practice a “balanced” mix of shares, bonds, property and cash. The Pacific Balance Fund is the long-standing PNG example. | Moderate; usually liquid, so units can be redeemed on request under section 257. |
| Property trust | Income-producing real estate: office buildings, warehouses, housing estates. The Pacific Property Trust was approved under the 1997 Act. | Rental income is steady but buildings cannot be sold quickly; usually non-liquid, so withdrawals run through withdrawal offers (sections 258–261). |
| Managed fund | A broad label for any professionally managed pool of securities, often used for a fund structured without the word “unit”. | Depends on the mandate set out in the deed. |
| Hedge fund | Uses borrowing, short selling and derivatives to seek returns in rising or falling markets. | High; often restricted to wholesale or sophisticated investors and may lock up capital for long periods. |
| Derivatives fund | Futures, options, swaps and other derivatives as defined in section 2. | High; losses can exceed the amount invested in the underlying contracts, although the unit holder’s loss is limited to the units. |
| Money market fund | Short-term bank deposits, bank-accepted bills, Treasury bills and other cash instruments. | Low; highly liquid; returns track short-term interest rates. |
| Guaranteed fund | A third party, usually a bank or insurer, guarantees the capital or a minimum return. | Low for the investor, but only as good as the guarantor; the deed must identify who guarantees what. |
| Capital protected fund | Structured so that the original capital is protected at a set date, commonly by holding bonds that mature at the invested amount while a smaller portion is invested for growth. | Low to moderate; protection usually applies only if units are held to the maturity date. |
| Umbrella fund | A single registered scheme with several sub-funds, each with its own investment policy, under one deed and one trustee. | Varies by sub-fund; investors can switch between sub-funds without leaving the scheme. |
Why the type matters
The type stated in the deed fixes several legal consequences.
- Investment powers. Section 210(1)(b) requires the deed to set out the trustee’s powers to invest scheme property. A money market fund’s trustee that buys shares in a mining company is acting outside the deed and in breach of its duty under section 191(1)(i) to make payments only in accordance with the deed.
- Withdrawal rights. Whether members can redeem on demand depends on whether the scheme is liquid under section 257(5), which in turn depends on what it holds. See liquid and non-liquid schemes.
- Disclosure. The prospectus must describe the scheme accurately. Calling a fund “guaranteed” when nobody has given a guarantee is a false or misleading statement, which attracts civil liability under Part IV and may be an offence under section 301.
- Changing type. A scheme cannot quietly become something else. Altering the deed requires a supplementary deed approved by the Commission under section 211, and a change that may prejudice members requires a two-thirds resolution of unit holders (section 211(4) and (5)). See amending the deed.
New types by Gazette
Paragraph (j) lets the Commission add types by notice in the National Gazette. This is how an exchange-traded fund, a Shariah-compliant fund or an infrastructure fund could be brought within the Act without amending it. Section 275 separately allows regulations to modify how Part V operates for particular classes of scheme. Readers planning an unusual structure should ask the Commission whether a prescription exists before drafting the deed.
Words on a brochure do not make a fund a particular type. Only the registered trust deed does. A Port Moresby retiree offered a “capital protected” product should ask to see the deed clause that creates the protection and the name of any party standing behind it. If the trustee cannot point to one, the protection does not exist in law. Guaranteed and capital-protected labels are among the commonest hooks used by unlicensed promoters; see how to spot a fraudulent scheme.
For the general definition that all these types share, see what a managed investment scheme is; for the contents of the deed, see what a trust deed must contain.
Sources
- Capital Market Act 2015 — ss 2(1) (“derivative”), 189(3), 191(1)(i), 208, 210, 211, 257–261, 275, 301
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.