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SIE Exam 2024 > Chapter 8: Packaged Products > Flashcards

Chapter 8: Packaged Products Flashcards

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SIE Exam flashcards
1
Q

Packaged Products

A

Includes long-term insurance contracts, units, or shares in collective investment schemes

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2
Q

Packaged products also include what?

A

Life policy, unit in a regulated collective investment scheme, or an interest in an investment trust saving scheme

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3
Q

Investment Company

A

Entity that is engaged in holding, managing, and investing securities

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4
Q

What are all investment companies registered under?

A

Investment Company Act of 1940

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5
Q

What characteristics do investment companies contain?

A

-Multiple investments
-More than one investor investing in the company at present
-Ownership interests are in form of equity or partnerships
-Managed investments

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6
Q

Managed Investment Companies

A

Manages publicly issued fund shares

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7
Q

Open-End Companies

A

Issue shares that are sold directly to investors; shares are not bought or sold on a stock exchange

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8
Q

Closed-End Companies

A

Issue a fixed number of shares that are bought and sold on a stock exchange

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9
Q

Unit Investment Trusts (UIT)

A

Investment company that provides a portfolio with a fixed set of securities for a specific period of time; can buy or hold a group of securities and make them available to investors as redeemable units

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10
Q

Characteristics of UITs

A

-Access to a specified asset class and have targeted exposure
-Not actively managed by a manager
-Bought and sold directly from the company that issues them
-Bought from secondary market
-Issued via an initial public offering
-Stated expiration date
-Not actively traded

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11
Q

Face-Amount Certificate Company (FAC)

A

Offer investors a certificate of investment, along with fixed debt securities that require the issuer to make fixed payments at a future date

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12
Q

What to FAC’s represent?

A

Contractual agreement between an issuer and an investor, where the issuer commits to making predetermined payments on a specified future date and investor provides fund to the issuer, either through regular installments or as a lump sum payment

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13
Q

Diversified Investment Companies

A

Usually invest in multiple assets and also in separate securities within each category

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14
Q

Non-Diversified Investment Companies

A

Allocate their funds to a particular asset type or sector, or to a limited number of securities within each sector

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15
Q

Prospectus

A

Formal document required by and filed with the SEC that provides details about an investment offering to the public

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16
Q

Investment Objectives

A

Set of goals that determine an investor’s financial portfolio

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17
Q

Primary Investment Objectives

A

-Safety of principal
-Income/Dividends
-Growth/Capital Gains

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18
Q

Secondary Investment Objectives

A

-Liquidity of assets and marketability
-Tax minimization

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19
Q

When is risk disclosure necessary?

A

When working with stocks, investments, bonds, and anything that is related to financial markets

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20
Q

What does risk disclosure provide?

A

Better understanding of the company’s risk exposure and risk management practices

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21
Q

What should a risk management document include?

A

-Risk summaries in case of long disclosure
-Material risk disclosure
-Relevant risk headings
-Inconsistent compliance
-Appropriate disclosure volume
-Generic risk headings

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22
Q

Performance Management

A

Process of making sure that certain objectives and activities meet the organization’s goal in an efficient manner

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23
Q

Sales Charge

A

Commission that is paid to the financial intermediary in a mutual fund, such as a broker, advisor, or financial planner

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24
Q

Sales Charge Disclosure

A

Document that gives general background information about sales charges, expenses, management fees, waivers, etc.

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25
Q

Operating Expense Disclosure

A

Expense a business sustains through its normal operations

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26
Q

Class Comparison

A

Descriptions that distinguish one class of fund shares from another within the same fund

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27
Q

Breakpoint

A

Specific investment thresholds at which discounts apply

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28
Q

Breakpoint Sale

A

Purchase of a mutual fund at a predetermined dollar amount that qualifies the investor for a lower sales fee tier

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29
Q

Exchange Privilege

A

Opportunity for mutual fund shareholders to exchange the investment fund with another within the same fund family

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30
Q

Advantages of Exchange Privileges

A

-Can exchange shares if company reorganizes, with new shares of more value
-Can exchanges share if first fund is liquidated and allows shareholder to maintain investment in similar product

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31
Q

Disadvantages of Exchange Privileges

A

-Creates sense of entitlement and raises expectations which might lead to disappointment
-Costly and time-consuming

32
Q

Mutual Fund

A

Collective investment that pools money from different investors and invests money into equities, bonds, and securities

33
Q

Who invests mutual fund money?

A

Professional Fund Managers

34
Q

Three Tier Structure of Mutual Funds

A

1) Fund Sponsor
2) Trust and Trustees
3) Assest Management Company (AMC)

35
Q

Tier 1: Fund Sponsor

A

Person/entity that can set up a mutual fund to earn money through fund management; must have some experience in financial services and sound financial track record

36
Q

Tier 2: Trust and Trustees

A

Created by the fund sponsor in favor of trustees through trust deed and trustees answer to investors; ensure mutual fund’s compliance with regulatory requirements and fiduciary standards

37
Q

Tier 3: Asset Management Company (AMC)

A

Responsible for creation and management of a variety of mutual fund schemes that are designed to meet the varying risk tolerance and investment objectives of investors and respond to market conditions

38
Q

Types of Mutual Funds

A

-Open-End Funds
-Unit Investment Trusts
-Closed-End Funds

39
Q

Board of Directors

A

Executive committee that supervises the activities of an organization

40
Q

Investment Advisors

A

Professionals/firms that provide advice on securities to clients and are registered with the SEC or state securities regulators

41
Q

Transfer Agents

A

Maintain records of investors and account balances, manage changes in share ownership, and distribute dividends

42
Q

Custodian

A

Financial institution responsible for securely holding customers’ securities to protect them from theft or loss

43
Q

Principal Underwriter

A

Involved with the initial distribution of mutual fund shares, in a contractual relationship with the investment company issuing fund shares

44
Q

Underwriting Agreement

A

Legally binding contract that establishes relationship between an underwriting group or syndicate consisting of investment bankers and the issuing corporation of a new securities offering

45
Q

What is the primary role of underwriters?

A

Evaluate the level of risk associated with the issuer’s business and determine the appropriate premium rates, loan borrowing rates, and create a market for securities with accurate pricing based on risk assessment

46
Q

Mutual Fund Complex

A

Group of mutual funds managed by the same investment company/fund family

47
Q

What is the biggest advantage of a mutual fund complex?

A

Diversification

48
Q

Net Asset Value (NAV)

A

Company’s total assets minus its liabilities

49
Q

What does the NAV represent?

A

Per-share value of the fund’s assets after deducting its liabilities

50
Q

Sales Charge

A

Compensates financial intermediaries and expressed as a percentage of investment

51
Q

Public Offering Price (POP)

A

Price at which new issues of stock are offered to the public by an underwriter

52
Q

No-Load Funds

A

Mutual fund in which shares are sold without commission or sales charge

53
Q

Mutual Fund Expense Ratio

A

How much of a fund’s assets are used for administrative and other operating expenses

54
Q

Share Class

A

Differentiates various types of shares in company share capital

55
Q

Share Class A

A

Common or preferred stock that has greater benefits in terms of dividends, asset sales and/or voting rights compared to other classes

56
Q

Share Class B

A

Classification of common stock that are bought and sold on public exchange platforms

57
Q

Share Class C

A

Mutual fund shares characterized by a level load that includes annual charges for servicing, distribution, and fund marketing set at a fixed percentage

58
Q

Sales Charge: Front-end Load

A

Fee charged with each purchase, reducing the funds actually invested initially, typically 5-6%, and made up of Class A shares

59
Q

Sales Charge: Contingent Deferred

A

Type of back-end load and the amount changes depend on length of time the investor holds onto their shares; typically Class B

60
Q

Sales Charge: Level Load

A

Consistent fee that investors pay for the purchase of mutual fund shares, calculated at a fixed percentage over a year; typically Class C

61
Q

Sales Charge: 12b-1 Fees

A

Fee paid out of a mutual fund to cover the costs of marketing and selling mutual fund shares

62
Q

Breakpoint

A

Investment threshold necessary to qualify for a reduced sales load

63
Q

Letter of Intent (LOI)

A

Shareholders indicate their intention to invest a predetermined sum of money in one or more Class A share accounts within a 13-month period; not legally binding

64
Q

Rights of Accumulation (ROA)

A

Enable mutual fund shareholders to benefit from reduced sales commission charges when the total number of mutual funds purchased, combined with the existing holdings, meets the ROA breakpoint

65
Q

Dollar Cost Averaging (DCA)

A

Used to mitigate price risk when acquiring mutual funds, ETF’s, etc.; rather than purchasing at a single price point, investors systematically buy smaller amounts of sharers at regular intervals, regardless of price

66
Q

What is a key benefit of DCA?

A

Reduces investment risk and preserves capital

67
Q

How can one redeem mutual fund shares?

A

Submit redemption request form to the fund company or its transfer agent

68
Q

Redemption Fee

A

Shareholder fee that some funds charge when the investor redeems mutual fund shares

69
Q

Withdrawal Plan

A

Allows shareholders to withdraw their money from a mutual fund or any other investment account at predetermined intervals

70
Q

Are withdrawals subject to tax deductions?

A

Yes

71
Q

Withdrawal Plans: Fixed-dollar Amount

A

Retirees determine how much money they need to withdraw each year and then reassess the amount after a few years

72
Q

Withdrawal Plans: Fixed Time

A

Taking out a fixed-dollar amount over a fixed period

73
Q

Withdrawal Plans: Fixed Number of Shares

A

Issues a fixed number of shares through an initial public offering and does not continuously issue new shares or redeem outstanding shares

74
Q

Unit Investment Trust (UIT) Company

A

Similar to a mutual fund; Funds from multiple investors are pooled with the aim of achieving a special return, are managed by trustees , and have a fixed portfolio of assets that generally doesn’t change over time

75
Q

Closed-end Fund

A

Mutual fund variant that raises capital for the company by issuing a predetermined number of shares in a single IPO

76
Q

Open-end Fund

A

Collective investment scheme that allows for the issuance and redemption of shares at any time and does not impose restrictions on the transfer of shares

SIE Exam 2024 (20 decks)

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