April 17, 2024

Empowered CG

Creating Home Magic

Unit Trusts & Investment Trusts

A unit trusts is a fund organization which mobilies savings /funds from small investors by selling units in the market. Therefore this is the collective or mutual fund. Sales proceeds of units or funds are then invested in the share/stock market. Units are periodically revalued by the trust managers & offered for purchase & sale at new prices. Individual investors or unit holders, trustee & the fund manager are three parties involved in a unit trust. The fund manager will invest money in shares to get maximum profit for the fund. Also dividends are distributed among the unit holders. Since small savers do not have information, knowledge & opportunity to invest in the share market, they can get the benefits of the share market investment through a unit trust. Also share market will expand due to unit trusts through the increased funds to the market. Unit trusts are open-ended institutions since they can buy back their units from unitholders. Unit trusts buy & sell one units dailly with unit holders.

Investment trusts are close -ended institutions since they cannot buy back one shares from the market. Investment trust is a company raising funds by selling shares to public for investment business in the stock market & is similar to other companies. Also, an investment trust is a corporate body setup under the companies act. A unit trust is setup under the trust ordinance & it is not a corporate body.

Efficient Market Hypothesis ( EMH ).

The three (3) forms of efficient market hypotheses are:

Weak for EMH.—–The week for EMH assumes that current stock prices fully reflect all security market information. Including the historical sequence of prices rates of return trading volume data & other market generated information. This hypothesis implies that past rates of return & other market data have no relationship with future rates of return.

Semi Strong Form EMH.—–This assets that security prices adjust rapidly to the release of all public information; that is, current security prices fully reflect all public information, The semi strong for EMH encompasses the weak form hypothesis, because all the market information considered by the weak form hypothesis, such as stock prices, rates of return , trading volume is public. Public information also includes all non-market information such as earnings & dividend announcements price earnings ratio, dividend yields,book value etc. This hypothesis implies that investors who base their decisions on any important new information after it is public should not derive above average risk adjusted profits from their transactions, because the security price already reflects all such new public information.

Strong Form EMH.—–The strong form EMH contends that stock prices fully reflect all information public & private sources. This means that no group of investors has monopolistic access to information relevant to the information of prices.Therefore this hypothesis contends that no group of investors should be able to consistently drive above avarage risk adjusted rates of return.This hypothesis encompasses both the wake form & semi strong form EMH.Further , the strong form EMH extends the assumption of efficient markets, in which prices adjust rapidly to the release of new public information to assume perfect markets, in which all information is cost free & available to everyone at the sometime.