A unit split occurs when a unit trust fund increases the number of its shares while at the same time decreases the unit price according to the same ratio as the split. Unit split makes the fund size bigger and price lower. The price of a unit trust fund is called Net Asset Value (NAV) which refers to the net value of a fund at the close of a business day, after deduction of all the expenses.
Does the total value of your investment change after a Unit Split exercise?
When a fund splits its shares, the total value of your investment does not change. Let’s say you own 200 shares of a unit trust fund with a current NAV per share of RM5.00. When a fund announces a 2:1 split, you now own 400 shares with a NAV per share of RM2.50 instead of 200 shares worth RM5.00 each. The total value of your investment remains the same, i.e., RM1,000.
|Item||Before Split||After Split|
|Number of Shared Outstanding||200||400|
|Par Value Per Share||RM 5||RM 2.5|
|Par Value of Total Shared Outstanding||1,000||1,000|
Why Do Unit Trusts Split?
Like stock splits, the main goal of a unit split exercise is to make the unit trust fund more attractive to investors. However, since any future gains generated by the fund are not affected, the effect of a share split is purely psychological.
When a unit trust fund price gets too high, many investors think that they are priced out of the market. Therefore, when a fund splits its shares, investors now feel the fund is within their price range and are encouraged to invest. The fact is an investment in a mutual fund has the same value, whether it is made before or after a split.