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SIE Exam 2024 > Chapter 8: Packaged Products > Flashcards

Chapter 8: Packaged Products 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
Operating Expense Disclosure
Expense a business sustains through its normal operations
26
Class Comparison
Descriptions that distinguish one class of fund shares from another within the same fund
27
Breakpoint
Specific investment thresholds at which discounts apply
28
Breakpoint Sale
Purchase of a mutual fund at a predetermined dollar amount that qualifies the investor for a lower sales fee tier
29
Exchange Privilege
Opportunity for mutual fund shareholders to exchange the investment fund with another within the same fund family
30
Advantages of Exchange Privileges
-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
31
Disadvantages of Exchange Privileges
-Creates sense of entitlement and raises expectations which might lead to disappointment -Costly and time-consuming
32
Mutual Fund
Collective investment that pools money from different investors and invests money into equities, bonds, and securities
33
Who invests mutual fund money?
Professional Fund Managers
34
Three Tier Structure of Mutual Funds
1) Fund Sponsor 2) Trust and Trustees 3) Assest Management Company (AMC)
35
Tier 1: Fund Sponsor
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
Tier 2: Trust and Trustees
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
Tier 3: Asset Management Company (AMC)
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
Types of Mutual Funds
-Open-End Funds -Unit Investment Trusts -Closed-End Funds
39
Board of Directors
Executive committee that supervises the activities of an organization
40
Investment Advisors
Professionals/firms that provide advice on securities to clients and are registered with the SEC or state securities regulators
41
Transfer Agents
Maintain records of investors and account balances, manage changes in share ownership, and distribute dividends
42
Custodian
Financial institution responsible for securely holding customers' securities to protect them from theft or loss
43
Principal Underwriter
Involved with the initial distribution of mutual fund shares, in a contractual relationship with the investment company issuing fund shares
44
Underwriting Agreement
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
What is the primary role of underwriters?
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
Mutual Fund Complex
Group of mutual funds managed by the same investment company/fund family
47
What is the biggest advantage of a mutual fund complex?
Diversification
48
Net Asset Value (NAV)
Company's total assets minus its liabilities
49
What does the NAV represent?
Per-share value of the fund's assets after deducting its liabilities
50
Sales Charge
Compensates financial intermediaries and expressed as a percentage of investment
51
Public Offering Price (POP)
Price at which new issues of stock are offered to the public by an underwriter
52
No-Load Funds
Mutual fund in which shares are sold without commission or sales charge
53
Mutual Fund Expense Ratio
How much of a fund's assets are used for administrative and other operating expenses
54
Share Class
Differentiates various types of shares in company share capital
55
Share Class A
Common or preferred stock that has greater benefits in terms of dividends, asset sales and/or voting rights compared to other classes
56
Share Class B
Classification of common stock that are bought and sold on public exchange platforms
57
Share Class C
Mutual fund shares characterized by a level load that includes annual charges for servicing, distribution, and fund marketing set at a fixed percentage
58
Sales Charge: Front-end Load
Fee charged with each purchase, reducing the funds actually invested initially, typically 5-6%, and made up of Class A shares
59
Sales Charge: Contingent Deferred
Type of back-end load and the amount changes depend on length of time the investor holds onto their shares; typically Class B
60
Sales Charge: Level Load
Consistent fee that investors pay for the purchase of mutual fund shares, calculated at a fixed percentage over a year; typically Class C
61
Sales Charge: 12b-1 Fees
Fee paid out of a mutual fund to cover the costs of marketing and selling mutual fund shares
62
Breakpoint
Investment threshold necessary to qualify for a reduced sales load
63
Letter of Intent (LOI)
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
Rights of Accumulation (ROA)
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
Dollar Cost Averaging (DCA)
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
What is a key benefit of DCA?
Reduces investment risk and preserves capital
67
How can one redeem mutual fund shares?
Submit redemption request form to the fund company or its transfer agent
68
Redemption Fee
Shareholder fee that some funds charge when the investor redeems mutual fund shares
69
Withdrawal Plan
Allows shareholders to withdraw their money from a mutual fund or any other investment account at predetermined intervals
70
Are withdrawals subject to tax deductions?
Yes
71
Withdrawal Plans: Fixed-dollar Amount
Retirees determine how much money they need to withdraw each year and then reassess the amount after a few years
72
Withdrawal Plans: Fixed Time
Taking out a fixed-dollar amount over a fixed period
73
Withdrawal Plans: Fixed Number of Shares
Issues a fixed number of shares through an initial public offering and does not continuously issue new shares or redeem outstanding shares
74
Unit Investment Trust (UIT) Company
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
Closed-end Fund
Mutual fund variant that raises capital for the company by issuing a predetermined number of shares in a single IPO
76
Open-end Fund
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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