Chapter 7: Pricing, Dealing & Settlement (4)

Question 1

What are prices at which AUT and OEICs are bought and sold at based on?

Answer 1

Based on the value of the fund’s underlying investments - net asset value.

Question 2

Authorised fund managers can quote prices which can be either…

Answer 2

• Single priced
• Dual priced

Question 3

What is Single Pricing?

Answer 3

Use of mid-market prices of the underlying assets to produce a single price.

Question 4

What is Dual Pricing?

Answer 4

Using market’s bid and offer prices of the underlying assets to produce separate prices for buying and selling of shares/units in the fund.

Question 5

What pricing do AUT’s use?

Answer 5

Dual pricing

Question 6

What pricing do OEIC’s use?

Answer 6

Single pricing

Question 7

What’s a Dilution Levy?

Answer 7

Additional charge levied on investors buying or selling units in a single-priced fund to offset any potential effect that large purchases or sales can have on the value of the fund.

Question 8

What price is prescribed by the FCA?

Answer 8

Maximum buying price

Question 9

What is the Maximum buying price?

Answer 9

The maximum price at which the fund manager is able to sell new units.

Question 10

What does the Maximum buying price comprise of?

Answer 10

Under dual pricing, comprises the creation price + fund manager’s initial charge.

Question 11

What is the creation price?

Answer 11

The price the manager must pay to the trustee to create new units, which broadly consists of the value of the underlying investments and an allowance for dealing costs.

Question 12

What’s the Selling price?

Answer 12

The price at which the fund manager will repurchase units.

Question 13

What’s the Minimum price (or cancellation price)?

Answer 13

The price received from the fund by the manager when they cancel the units.

Question 14

What explicit charges can fund managers charge?

Answer 14

• Initial charge made for the investment.
• Annual management charge (AMC).

Question 15

What charges that fund managers can charge are less explicit?

Answer 15

• Brokers’ commission for trades undertaken.
• Legal and audit fees.
• Fees for specialist taxation advice.

Question 16

What are UCITS funds required to publish?

Answer 16

An Ongoing Charges Figure (OCF) and quote this in the key investor information document (KIID).

Question 17

What does OCF figures include?

Answer 17

All types of expenses incurred by the UCITS, such as…
* Costs of UCITS management company
* The depositary
* The custodian
* Any investment adviser
* Costs of outsourced services
* Registration fees
* Regulatory
* Audit fees
* Payments to legal and professional advisers

Question 18

What charges do OCFs not include?

Answer 18

Don’t include initial, exit charges or performance fees.

Question 19

What do other funds also publish with regards to charges?

Answer 19

Total Expenses Ratio (TER).

Question 20

What does the TER consist of?

Answer 20

The TER consists of the AMC and other charges.

Question 21

What other charges are in the TER document ?

Answer 21

Fees paid to…
* Trustee
* Depositary
* Custodian
* Auditors
* Registrar

Question 22

Which ways can investors buy and sell units?

Answer 22

• Directly with the fund manager
• Via their broker or financial adviser
• Through a fund supermarket or platform

Question 23

How can investors buy or sell units?

Answer 23

• Directly with fund manager
• Via their broker or financial adviser
• Through a fund supermarket

Question 24

Is there a secondary market for units or shares?

Answer 24

No, can only trade between investors and the fund manager.

Question 25

Where are units in AUTs and shares in OEICs bought?

Answer 25

Bought from the managers themselves and not the stock market.