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IMC Unit 2 > Chapter Ten > Flashcards

Chapter Ten Flashcards

1
Q

Describe an investment trust?

A

The legal form is a plc. This is a company in which investors invest by buying shares in the company and the investment trust company itself then invests in other companies

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2
Q

What is a unit trust?

A

A legal trust structure where investors buy units in the fund that distributes income and achieves capital gains

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3
Q

What is a wrap account?

A

A fund that offers tax advantages which allows funds from many providers to be held in a single account

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4
Q

Do investors control what assets are held within the fund?

A

No

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5
Q

Are unit trusts or invnestment trusts legal trusts?

A

Unit trusts are legal trusts, whereas investment trust companies are plc’s listed on the LSE

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6
Q

What type of trust can invest in overseas equity?

A

Both unit trusts and investment trusts can

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7
Q

What restriction is there on borrowings for a UCITs retail fund?

A

A scheme may only borrow up to 10% of the NAV of the fund

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8
Q

Are all unit trusts authorised?

A

No, unauthorised unit trusts exist but cannot be promoted to the public

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9
Q

When must a unit trust be authorised?

A

If it is to be advertised and promoted to private customers

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10
Q

Is an authorised unit trust an open or closed ended investment?

A

It is an open-ended investment

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11
Q

Who regulates authorised unit trusts?

A

The FCA

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12
Q

What is the responsibility of the Depositors in respect of an open ended investment company?

A

To safeguard the assets of the OEIC

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13
Q

What circumstances can lead to a unit trust manager holidng a box?

A

Re-purchase of units from unit holders

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14
Q

What is a ‘box’ in a unit trust?

A

The units held in the box enables the unit trust manager to match buyers and sellers of units. When an investor subscribes to a unit trust, the money is sent to the unit trust manager who credits the investor with the units held in the box

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15
Q

What happens if in a unit trust no units are held in the ‘box’?

A

If no units are held or additional units are required, the unit trust manager requests the trustee to create units

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16
Q

How much of the total fund can an authorised unit trust that is not a tracker fund invest in any one security?

A

10%

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17
Q

How much of the shares in any one company that is not itself a collective investment scheme can an authorised unit trust that is not a tracker fund acquire?

A

10%

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18
Q

Why are investment trust companies always closed-ended?

A

Because they have fixed share capital

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19
Q

What are the three main types of structured products?

A
  1. Structured capital protected products
  2. Structured capital at risk products
  3. Structured deposits
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20
Q

Under COLL Sourcebook rules, how much of a UCITs retail scheme’s assets can be invested in the issues of one government body?

A

No more than 35%

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21
Q

When can a UCIT’s scheme breach the government investment limit?

A

It may breach the 35% limit for a single issuer provided that no more than 30% of the scheme is invested in a single issue and that the scheme’s assets compire at least six different government bond issues

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22
Q

What is a split capital trust?

A

Trusts where capital shares are paid any surplus assets on the winding up of the trust

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23
Q

What are the three main classes of share in an investment trust?

A

Income share, zero-dividend preference share and a capital share

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24
Q

What is generally the most risky type of share to hold in an investment trust?

A

Capital shares as they receive the remainder of the investment trust’s funds once the other classes of shares have been paid on winding-up

25
Q

Describe the significance of UCITS

A

A classification of funds enabling cross border marketing within the EU

26
Q

Why was UCITS created?

A

To facilitate cross-border marketing of collective funds

27
Q

What determines the price of shares in an investment trust?

A

Supply and demand for the shares in the investment trust

28
Q

Where are shares in an investment trust company traded?

A

On the LSE and the price reflects supply and demand

29
Q

When is a dilution levy most likely to be applied in respect of an OEIC?

A

There are exceptionally large fund outflows

30
Q

What does a dilution levy do?

A

If there are exceptionally large outflows of funds, the costs involved with altering the underlying assets of the fund may have a negative effect on the shares held by the existing investors. This may cause a problem for the fund manager who has to go into the market to sell the underlying assets, thus incurring costs. These costs can be recouped by the use of a dilution levy

31
Q

Can Individual savings accounts hold investments in OEICs?

A

Yes

32
Q

Who looks after the assets of an OEIC?

A

A depository

33
Q

Are unit trusts dual-priced?

A

Many unit trusts are dual priced, with a spread between the buying and selling prices of units

34
Q

How are OEIC equity fund distributions paid?

A

They are paid gross

35
Q

What do the ICVC regulations cover?

A

Open ended investment companies

36
Q

What does ICVC stand for?

A

Investment company with variable capital

37
Q

What is true about OEIC shares’ price?

A

They have a single price, with no bid/offer spread

38
Q

Can OEIC shares be held in an ISA?

A

Yes

39
Q

What can an investment in an OEIC provide?

A

Diversification

40
Q

Can you buy OEIC shares in the market when their valuation stands at a discount to the aggregate market value of its shares?

A

No, the market price of OEIC shares will reflect the net asset value

41
Q

Does an investor in a unit trust benefit from an increase in value of a portfolio of equities, government and corporate bonds?

A

Yes

42
Q

Does a unit trust have an independent trustee?

A

Yes

43
Q

Does a unit trust have the benefit of fund management?

A

Yes

44
Q

Does an investor in a unit trust benefit from the ability to select individual equities?

A

No, the whole point of investing in a unit trust is that you purchase units representing a large number of investments of shares, bonds, etc…

45
Q

What can a UCITS fund not invest in?

A

Single property

46
Q

What are the requirements of securities in a UCITS fund?

A

They must consist of transferable securities, approved money-market instruments, units in collective investment schemes, derivatives and forward transactions and deposits

47
Q

Can a UCITS fund invest in property?

A

It can invest in property, e.g. via shares in a property company, however it cannot invest in single properties

48
Q

What are the ARC Private Client Indies available for?

A
  1. ARC cautious PCI
  2. ARC balanced asset PCI
  3. ARC steady growth PCI
  4. ARC equity risk PCI
49
Q

Are investment trusts closed or open ended?

A

Closed as they have fixed share capital

50
Q

Are ICVCs open or close ended?

A

They are open-ended

51
Q

Are unit trusts open or close ended?

A

They are open-ended

52
Q

Which investment vehicle is subject to the Companies Act 2016?

A

UK investment trust company. As they are companies they are governed by company law

53
Q

Are ETFs structured as a company?

A

Yes

54
Q

Are ETFs priced at set valuation points throughout the day?

A

No, ETFs are continuously priced throughout the trading period

55
Q

Are ETFs open or close ended?

A

They are open-ended

56
Q

Are ETFs listed?

A

Yes

57
Q

A client has been told that their holding is trading at a significant discount to NAV. What investment is the client likely to be holding?

A

A closed-ended fund such as an investment trust company may trade at a premium or discount. They normally trade at a discount

58
Q

Where do open-ended funds such as unit trusts, OEICs and ETFs trade?

A

At the value of the underlying investments

IMC Unit 2 (11 decks)

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