2.1 Introduction

The second chapter in this research project is about the literature review related to the research topic which is the factors that influence the generation Y toward the government sponsored unit trust investment. In this chapter, the researcher will discuss about the important of government sponsored unit trust investment and the USA government sponsored unit trust. Besides that, the researcher try to search the journals or articles from other researchers that related to the topic mentioned above. The researcher will do the literature review from other researcher’s opinion and research founded about the factors included return, risky, tax benefits, liquidity, professional management that will influence the unit trust investment as well.

2.2 The Social Security Trust Funds (USA Government Sponsored Trust Funds)

The U.S.A government had issue a government sponsored unit trust fund called the Social Security Trust Funds. The Social Security Trust Funds system is a pay as you go system which refer to the payments to current retirees come from current payments into the system. The U.S.A government reports for excess paid-in participation from the workers and employers to the Social Security system which are not need to stock current benefit payments to the retirees, disabled people or survivors (Social Security Administration, 2011).

Paid-in participation that surpasses the required sum to fully fund current payments to beneficiaries are invested in the securities or assets issued by the U.S.A government. The securities form the assets of the Social Security Trust Fund and because under U.S.A federal law these securities are refer to future obligations that must be repaid. The part of the national debt that is not reflect “publicly held” portray the obligations bring on by the U.S.A government to itself (Wikipedia, 2011).

The word “Social Security Trust Funds” can explained to something of a misnomer as the Social Security Administration of U.S.A actually supervise two type of separate funds that hold federal government debt obligations related to what are traditionally thinking of as social security advantages. The larger of Social Security Trust Funds is the Old Age and Survivors Insurance (OASI) Trust Fund. OASI holds in trust those interest related securities that the federal government willing to fulfill to pay future benefits to the retirees or survivors. Besides that, the smaller fund is the Disability Insurance (DI) Trust Fund. DI Trust Fund holds in trust those securities that the federal government willing to fulfill to pay benefits to those who are disable and unqualified of productive work as well as to their life partner and family members (Social Security Administration, 2011).

The Social Security Trust Funds will benefits to the retired workers and the family member of deceased workers. The Social Security Trust Funds also will benefits to the disable workers and their family members are paid from the Disability Insurance (DI) Trust Fund. Based on the study, there was more than 98 percent of total payout in 2010 were pay for the benefit payments. The U.S.A government was set up a board of trustees to look after the financial operations of the trust funds and trustees will reports to the Congress on the financial performance of the trust funds annually (Social Security Administration, 2011).

Unlike a symbolic private pension plan, the Social Security Trust Fund does not hold any marketable assets to protected workers’ paid-in contributions while it hold non negotiable U.S.A Treasury bonds and securities which backed by the full trust and credit of the U.S.A government (Wikipedia, 2011).

From the economic view, if the Social Security Trust Fund makes the government expenditure increase then the trust fund is not advantage to national savings because no money is being preserved. On the other hand, if the government expenditure and tax rates are not influence by the trust fund then the trust fund has helpful to the national savings. If trust fund increases the national savings level then the trust funds has execute the objective of saving revenues for future national expenditure and this has been the subject of important dispute (Wikipedia, 2011).

2.3 Important of Government Sponsored Unit Trust Investment

Government sponsored unit trust is one of the unit trust investment which is sponsored by the government in way to achieve economic benefits of country, specific goal, and increase the number of trust holders. Government sponsored unit trust funds is differ with private unit trust funds. Government sponsored unit trust funds is more secure compare with private unit trust funds due to government sponsored unit trust funds is manage by a government related company and it is hard to hear that government sponsored unit trust funds facing losing in their portfolio investment or having trust funds financial problems. Peoples are more confidence to government sponsored unit trust fund investment because of the good performance of government sponsored unit trust in the rate of return. We can see nowadays many citizens are willing to buy government sponsored unit trust fund especially for the young generation as well. The stable and return rate which higher than banks fix deposit rate are the most factor to attract them to buy government sponsored unit trust funds (ASNB, 2011).

Nowadays, the unit holders of government sponsored unit trust investment between age 18 until 35 are getting more and more. They look for the government sponsored unit trust investment as a main way to increase their income. The 2008 global financial crisis was affected our country economic growth. Moreover, high inflation rate create price increasing on most of the daily goods and services in our country. Malaysia workforce especially generation Y is burden on this situation and they try to find way to increase they income to overcome the life. Low bank interest rate and high risk investment products are not attractiveness to them at all and they started feel that government sponsored unit trust fund investment is suitable for them since it is sponsored by the government and comfortable rate of return. They aware that become a unit holder of government sponsored trust fund is important and benefit to them to enlarge their income. The middle low income citizens can utilize this chance to invest in government sponsored unit trust funds to create more wealth in way to improve their economic condition since everyone has same opportunity in government sponsored unit trust investment.

The government sponsored unit trust fund investment deliver most of the important “know how” of investing to those best furnished to manage it which is the professional fund managers. The benefits that can get from the government sponsored unit trust funds investment are diversification, affordability, liquidity, professional fund management, wholesale investment costs, investment exposure, access to other asset classes and ease of regulation (FIMM, 2011).

Furthermore, invest in government sponsored unit trust can help the investor to cover the high cost of education for their children. The parent can reduce their burden on children’s education fees if they invest in government sponsored unit trust more early because this unit trust is a medium to long term investment. Next, government sponsored unit trust investment can also aid people to pay off the housing mortgage more early or able to buy another house. As people know that growing old and retiring is unavoidable and it is never too early to plan for retirement even though we have the Employees’ Provident Fund (EPF). The people should aware about the right and choice to retire in comfortable and ease environment in future so invest in government sponsored unit trust in the easy way for retirees to achieve their dream. Besides that, people can withdraw the cash from their unit trust account if happen any unexpected emergencies in future time (FIMM, 2011).

2.4 Selecting Criteria on Unit Trust Funds

According to Ooi Kok Hwa’s article publish in The Star Online (2009), unit trust always offer a desirable substitute to the investors who willing to get benefit from the unit trust investment diversification and enjoy the stable and higher return rate as compared to other type of investment. However, Ooi aware that many people are misunderstanding and misconception about the diversification nature of the unit trust funds. Some people simply choose any unit trust funds that they like to invest just because of the low risk in unit trust funds investment. Based on Ooi’s opinion, the investors should have some basic knowledge and understanding about the unit trust funds and do some research before they choose to invest in unit trust funds (The Star Online, 2009).

Besides that, every investor should know about their investment objective and risk tolerance levels very clearly before invest in unit trust funds. The retirees should look into the income funds which are more foreseeable while the young generation or parent should look into the growth funds which will gain high return but with high level of risk too. One of the key criteria they need to aware is investment strategy. Every fund has its own investment profile and strategy plan which the investors should know and understand about it to make sure that it suit to their investment objective and within the risk tolerance level (The Star Online, 2009).

Furthermore, the past performance of unit trust funds should be aware before making decision to invest on it. The investors should realize that good past performance will not repeated again in a very short future time and shun from overly arouse to see good performance on the new funds. Besides that, investors also need to aware about the cost of the funds. Some unit trust funds will charge administration fees or sale fees to the investors when they buy or sell the funds. Fund performance is a measure of the fund growth and if the fund managers always change by time, this will make some problem to the investors to make investment decision because different manager has different styles which will influence that performance of the funds (The Star Online, 2009).

Malaysia Unit Trusts

Malaysia introduced the unit trust idea relatively early compared to other Asian countries. The unit trust investment was first established by a company called Malayan Unit Trust Limited. The unit trust industry history in Malaysia can be divided into four periods (FIMM, 2011).

2.5.1 The Period from 1959 to 1979 (Formative Period)

The formative period in the history of the Malaysia unit trust industry were describe by leisurely growth in the sales of units and a lack of public concern in the unit trust products. In that period, there was only five unit trust management companies with a total of 18 funds introduced to public. The unit trust industry was managed by the Registrar of Companies, the Public Trustee of Malaysia, Ministry of Domestic Trade and Consumer Affairs and the Centre Bank of Malaysia. The state government sponsored unit trusts was appear at that period in response to the government objective to increase the domestic household savings level (FIMM, 2011).

2.5.2 The Period from 1980 to 1990

Malaysia government start participate in the Unit Trust Industry and they form a committee to manage and control the unit trust industry named the Informal Committee for Unit Trust Funds which included representatives from the Registrar of Companies, the Public Trustee of Malaysia, Centre Bank of Malaysia and the Capital Issues Committee (FIMM, 2011).

In 1981, the development of the unit trust industry was significant progress when the Scheme Amanah Saham National was introduced by the Permodalan National Berhad (PNB). The total units contribute by the public billowed to an unduplicated level due to the overwhelming response to the Amanah Saham National although only 11 funds being introduced during this period (FIMM, 2011).

2.5.3 The Period from 1991 to 1999 (Fastest growth)

The number of unit trust management companies established and funds under management was increasing rapidly and the unit trust industry was very prosperity in this period. on 1 March 1993, Securities Commission was established to centralize the regulations of unit trust with the implementation of the Securities Commission (Unit Trust Scheme) Regulations 1996. The Amanah Saham National and Amanah Saham Native (Amanah Saham Bumiputera) adopted marketing strategies to played key roles in produce unit trusts household products in Malaysia. Hence, the total asset value of funds grew from RM 15.72 billion