Page 142 - Profile's Unit Trusts & Collective Investments - March 2026

Chapter 8 Classification of CISs

Regulation 28 funds
Regulation 28 of the Pension Funds Act stipulates prudent investment limits that must be
adhered to by managers of retirement funding vehicles (such as pension funds, provident
funds and RAs). The Regulation 28 rules also apply to unit trusts and other collective
investment schemes that wish to attract retirement savings.
A revised Regulation 28, which became effective on 3 January 2023, introduced some important
changes for pension funds, as shown in Table 8.2. It is important to note that the FSCA regulations governing
collective investment schemes take precedence over Regulation 28. For example, although Regulation 28
now allows pension funds and other retirement vehicles to invest directly in commodities, FSCA rules
do not allow unit trusts to do this. However, where a Regulation 28 limit is more restrictive than the
FSCA regulations governing unit trusts, a Prudential fund would have to comply with Regulation 28.
As one fund manager puts it, where more than one code is applicable, the fund manager must always
apply the more stringent rules.
It should be noted that the “prudential” environment extends beyond those funds flagged as
Regulation 28 compliant. Most LISPs offer wrappers and other retirement products that allow investors
to select from a range of unit trusts – in order to meet Prudential Requirements the aggregate exposure
to each asset class across the consolidated portfolio must comply with Regulation 28. Regulation 28
compliant funds may or may not form the backbone of a retirement funding strategy; a “prudential”
portfolio can also be constructed by combining different types of funds – money market, multi asset,
equity and bond funds – within a retirement wrapper.
is designed to reflect different levels of risk. Equities are generally the most volatile asset class and
equity exposure is therefore the predominant source of risk in a multi asset portfolio. Although not
an absolute indicator of the risk associated with any one category, it does group the funds more
meaningfully than if they were in one sector.
Prior to 2013 a category existed under Asset Allocation for Targeted Absolute and Real Return
funds. Added in 2003, the sector catered for funds that aimed to beat inflation or to achieve a defined
minimum return. The typical benchmark of an absolute or real return fund is CPI plus a real return
target. As part of the 2013 classification revision these funds were moved to other appropriate Multi
Asset sectors based on their defined mandates.
As mentioned earlier, some Income Funds, which previously fell under the Interest Bearing (then
Fixed Interest) category, were moved to Multi Asset under the 2013 revision. This is because some
income funds can, mandates permitting, invest a portion of assets in high-dividend shares or other
instruments that cannot strictly be defined as interest-bearing securities.
Flexible funds
Flexible funds invest in a combination of securities in the equity, bond, money and listed property
markets. They are often aggressively managed, and most flexible fund mandates allow the fund
manager to shift holdings from one asset class to another at any time. Managers of Flexible
funds seek to maximise total returns by favouring different asset classes at different times based
on prevailing economic and market conditions (eg, moving predominantly into interest-bearing
securities during a stock bear market). The mandates of Flexible funds can vary significantly, and
this – plus the large degree of discretion enjoyed by fund managers in this sector – means that a
wide range of risk/return characteristics are found across
Flexible funds.
Basis point For many people, Flexible funds are regarded as the
A basis point is one one-hundredth of greatest test of asset management ability. Subject to
1%. Basis points are used to express mandate constraints, the manager of a Flexible fund
interest rate changes and yields that has complete freedom to determine (and change at
are less than one percent; 1% equals 100 basis points. short notice) the asset allocation of the fund. Good
A move in a bond yield from 10.96 to 10.97 is a one Flexible fund managers are generalists, with a good
basis point move. understanding of all types of markets and how they

140 Profile’s Unit Trusts & Collective Investments March 2026