Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

RO2 Investment Principles And Risk > Colective Investments > Flashcards

Colective Investments Flashcards

1
Q

What is the most popular form of collective investment in the UK

A

OEICs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the European version of collective investment?

A

SICAV

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is an open ended investment?

A

An investment that creates new units or shares when someone invests. So, the price is linked to the underlying investment accosted to it.

Unit trusts
OEICs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How many investment sectors are there from the IA?

A

Over 35

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What do investment sectors allow?

A

A way of grouping over 3000 funds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How many assets must be in a sector for a fund to be added to it?

A

80% or more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

In order to quality as an income fund, the yield on a fund must be what?

A

90% of the index for that sector

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Where can you find the rules for collective investment schemes?

A

In the FCA Collective Investment Schemes (COLL) Sourcebook

Investment Funds (FUND) sourcebook for alternative investment funds (hedge funds)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are FCA authorised funds structured as?

A

OEICS
Authorised Unit Trusts
Authorised Contractual Schemes
Recognised schemes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How are authorised funds characterised to dictate who they can be marketed to, operational rules and restrictions?

A

UK UCITS- comply with UCITS, marketed to UK retail investors.

Uk, non UCITs- don’t comply, marketed to UK retail investors.

Qualified investor schemes - only for professional or sophisticated investors. Managed by alternative investment fund managers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are UCITS?

A

Wide-ranging set of rules for European based collective funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What must a fund have to be authorised by the FCA

A

90% of the fund in approved securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What duties does the FCA set on fund managers and ACDs of OEICS

A

Making sure the markets invested in are liquid, regulated, operating regularly, recognised by a government agency or statutory body, and open to the public.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How are retsil UK UCITS (non index tracking) Diversified?

A

No more than 10% value in any one company.
All holdings of more than 5% can not be more than 40% of the portfolio.
Ie minimum 16 holdings 4 of 10% 12 of 5%.
Most have over 50.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How are index tracking UK UCITS diversified?

A

No more than 20% in any one of companies rare occasions can increase to 35%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

If a fund holds more than 35% in government fixed interest securities from one government, what must it do?

A

Have at least 6 different issues of that stock with no individual more than 30% of the fund.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How much can be held in unlisted/unapproved securities for UK UCITS and UK non-UCITS

A

10% for UK
20% UK non-UCITS (Includes unregulated schemes)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How much can be held in another collective scheme for UK UCITS and UK non-UCITS

A

20% UK UCITS
35% UK non-UCITS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the limits on exposure for warrent for both UK and non UCITS?

A

There are no limits on warrants

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the rules in gearing up/ borrowing for retail UK UCITs?

A

Not permitted to borrow for gearing.
Can borrow short-term up to 10% of the value of the fund to meet short-term requirements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the rules in gearing up/ borrowing for retail UK UCITs?

A

Can borrow up to 10% of fund permanently.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What makes OIECS and Unit Trusts less risky?

A

The rule against gearing.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the rules for UCIS?

A

Have standard communication principles. (Clear, fair, not misleading)
Restricted to sophisticated and high net investors.
May not be covered by FSCS
Not subject to strict rules around management.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What do the FCA consider UCIS

A

NMPI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the alternative investment fund managers regulation 2013?

A

The UKs version of AIFM directive.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What are unit trusts structured as?

A

Oddly enough trusts

Has a trustee for the investors’ interests.
Has an independent manager for day to day running.
Assets held by a custodian.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Who is usually the trustee for a unit trust.

A

A large company such as a bank or investment firm that is authorised by the FCA.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is the usual price for a unit trust manager?

A

0.5 to 1.5%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

If a unit trust is marketed to the public, what must they be?

A

Authorised by the FCA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What are the duties of the trustee of a unit in trust?

A

Monitoring the manager
Setting up and holding a register of unit holders. (Can be delegated)
Make sure assets are invested properly and as per trust overall objective.
Audit trust, monitor price, set up meetings with unit holders.
Setting up holder register, certificates, paying income, making trust recognised for charity or pension. (If necessary)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What are the rules of the trust deed for a unit in trust.

A

Between trust manager and trustee.
Legally binding. Trust can only be created once signed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What must the trust deed for a unit in trust contain?

A

Investment strategy and aims and objectives of the trust. Should be available for investors to see.

Limitations of investment strategy but in reality the nothing but other than the statement the fund can invest in eligible markets regualted by the FCA needs to be included.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What often acompanies the trust deed?

A

A document covering dates for valuations and other provisions. (Scheme particulars)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What are the responsibilities of the unit trust manager?

A

Be authorised by the FCA
Manage assets in accordance with regs, law, scheme rules, and deed
Invest the funds
Have enough resources to operate
Keep record of units issued for trustee to reconcile against their register.
Inform trustee and FCA of reg breaches
Providing requested information by the trustee
Promoting and advertising the fund

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

When must authorised unit trusts publish reports?
And what

A

Twice a year
The information stated in the statement of recommended practice for unit trusts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What is the premise of authorised unit trusts

A

To have a single undivided unit that can be split into income units and accumulation units.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What do non authorised unit trust usually operate for?

A

Pensions and charity schemes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

How is corporation tax handled for unit trusts on gains, opitions, and futures?

A

None paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

For tax, how are unit trust dividends treated?

A

As franked income. (Paid straight to the investor, and their own tax postion decides the tax they pay.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

How is tax handled for interest and rental income on unit trusts?

A

Corporation tax paid at 20%.
If the fund pays interest instead of dividends, this is an expense for the company. (Prevents double taxation)

41
Q

What is withholding tax?

A

Tax on foreign dividends that may not be reclaimable.

42
Q

What is the equalisation payment?

A

An extra payment, with the first income on a unit trust, to make up for the inflated cost at the purchase date due to accrued interest from the distribution date.

43
Q

How much tax is paid on the equalisation payment?

A

No income tax as it is a return of capital, but it does require capital gains tax.

44
Q

What is the income paid to investors within a unit trust called?

A

Distribution units

45
Q

How are funds with less than 60% of assets in fixed interest or cash, distribution units paid?

And how does the tax work?

A

By dividend.

No tax for non-tax payers or those below the £1000 allowance.
Basic tax 8.75%
Higher tax 33.75%
Additional 39.35%

46
Q

How are funds with more than 60% of assets in fixed interest or cash, distribution units paid?

And how does the tax work?

A

Treated as a distribution of interest.
Paid gross
Taxable but can use personal savings allowance. (£1000 basic, £500 additional)

47
Q

How are trustees of unit trusts treated?

A

Additional rate tax payers

48
Q

How is tax paid on disposal of units for the investor?

A

Capital gains tax
10% basic
20% Higher
£6000 annual exempt (£3000)

49
Q

What is the window between sale and repurchase

A

30 days

50
Q

What does it mean to pay tax on an arising basis?

A

Taxable whether reinvested or received by the investor.

51
Q

How can ISAs be used for UCITS

A

They can all be held in an ISA tax wrapper, but if offering a capital guarantee of more than 95%, it can only be a cash ISA.

52
Q

What do the rules on pricing units include

A

Maximum price at which units can be sold and minimum price at which units can be repurchased on dual priced fund.

53
Q

To make changes to ongoing charges, what notice must be given to the investors?

A

60 days

54
Q

What is the maximum offer price broadly?

A

Value of the underlying assets at published valuation point, plus uninvested cash, costs, minus tax, fees, and expenses divided by the number of units, plus the initial charge.

55
Q

What is the minimum bid price broadly?

A

Value of assets best market prices, minus costs of selling, plus un-invested cash, plus accrued income (after charges and expenses) divided by number of units.

56
Q

What is the bid price spread?

A

The difference between the offer price and the bid price. Which is a charge to the investor.

This can be achieved on single price trusts by an initial charge from the investment.

57
Q

What is the annual management charge?

A

0.5%-1.5%

58
Q

How does the manager control demand?

A

Sets the price at the higher offer-end to capitalise on demand.

Set the price at the lower offer-end to stimulate demand.

59
Q

What choices does the manager have when valuing funds?

A

Forward pricing - setting the price at the next valuation point.

Historic pricing - setting the price at the last valuation point.

When the fund operates in historic, if more than 2% move since last valuation and investor asks must be moved to forward pricing.

60
Q

How are most funds priced?

A

On a forward priced basis this prevents day trading.

61
Q

How do the managers cope with demand?

A

They run a box with issued but not sold or repurchased units.

62
Q

How do managers control units in a box.

A

Cancel them at the cancellation price to take them out.

Put new ones in by creating them (creation price)

63
Q

What are the names for the parties in an OEICS

A

The depository- owns assets, authorised, overseas management.

The authorised corporate director (ACD) or board of directors- manages the fund

64
Q

How are most OEICS priced?

A

Singlely

65
Q

How are OEICS charged

A

Single- intial charge
Large investments and disposals may incur dilution levy

66
Q

How are OEICS priced?

A

Forward or historic
And where umbrella fund all sub funds must use same pricing method.

67
Q

What is a positive of OEICS?

A

Umbrella funds allow changing funds within the tax wrapper.

Create different share classes so when price changes ocure they can be done on the new share class not affecting the old one.

Similarity to eupean funds.

68
Q

How can you access OEICS and Unit Trusts?

A

Multi manager products
-fund of funds
-manager of funds
Fund supermarkets
Wrap accounts

69
Q

What is fettered and un fettered?

A

Fettered only holds funds of one investment house (cheaper)

Unfettered allows funds from the market.

70
Q

What is the advantage of wrap accounts?

A

Allows all investments to be held in one wrapper. One statement. One tax statement each year.

Allows total wealth level across all holdings.

71
Q

Why are offshore funds popular?

A

Because of gross roll-up on tax.

72
Q

Where can the legislation for recognising funds from outside the UK be found?

A

Section 272 of FSMA 2000.

73
Q

What are the rules on offshore funds?

A

Broadly, the same as OEICS can not be sold through cold calling due to can eltion rights often not applying.

74
Q

What are reporting funds?

A

Offshore funds who disclose to HMRC all income.
UK investors will be told this status and declare it in their tax return.

75
Q

What happens to dividend payments by offshore funds?

A

Generally subject to whitholding tax that can not be recovered.

76
Q

What happens to income tax for reporting accounts?

A

Taxpayers are liable for income tax on their share of funds, whether distributed or not, and all are deemed as distributed.

77
Q

Where the reporting fund is a company, what happens to dividends?

A

They will be classed as foreign dividends and taxed in the same way as equities.

78
Q

What happens to income from reporting funds that hold over 60% of their fund in fixed interest securities?

A

Deemed as interest and taxed in full subject to tax allowances.

79
Q

How does CGT work for reporting funds?

A

Works as normal as long as recognised as a reporting fund from the start of investment.

80
Q

How is tax paid on non-reporting funds?

A

Rolling up the income.
Taxing CGT as normal on the gains but without the annual exemption because this is charged to the income at rates of 20% 40% 45%.

81
Q

Why would people choose a non-reporting fund, and why would they choose a reporting one?

A

Non-reporting- to benefit from gross roll-up if the tax rates may drop or they become non-uk resident. Non don’t pay UK!! tax)

Reporting for lower tax rate.

82
Q

How are uk residents but non UK domiciled charged tax?

A

On an arising basis on all UK and non income and gains unless eligible for the remittance and choose to use it for the charge.

Not charged IHT on their non UK assets.

83
Q

What is the automatic exchange of information (formally the European savings directive)

A

Countries signed up to this automatically share information to prevent tax-evasion.

84
Q

Describe investment trusts (investment trust companies)

A

Corporate body not a trust. (Regulated under company law, listed on stock exchange)
Can invest worldwide in quoted and unquoted shares.
Association of Investment companies set group clarifications for investments
Closed ended
Not for retail traders. Traders may, however be authorised.

85
Q

What are the terms used for equal, above, and below prices when talking about Closed ended investing?

A

Equal- Trading at net assets value
Above- Trafing at premium
Bellow Trading at discount

86
Q

What is the diluted NAV?

A

The NAV if everyone took their convertible loan stock.

87
Q

What is the difference between the offer and bid price on an investment trust?

A

The turn or maker spread
The bigger the trust, the more demand the smaller the turn.
Vise versa because to make up for the difficulty selling shares.

88
Q

What are the structures for investment trusts?

A

Standard or conventional.
Split capital

89
Q

Describe split capital.

A

Limited lifespan set on outset.
Different share classes issued.
One paid income
2nd (Capital share) paid growth on windup.
May have zero or zero dividend preference share class. (Better capital pays no dividend)

90
Q

What is the hurdle rate?

A

The amount an investment must grow each year to meet the redemption rate or share price.

91
Q

Discribe warrants?

A

Rights to buy shares at a certain price at a certain time. Preferably lower rate.

Can be traded but usually offered as sweeteners on investment trusts

No tax liability due to not holding the share at the time. CGT may need to be paid on buy.

High risk investments

92
Q

What is share buyback?

A

Process of buying back shares to manage supply and demand.

Up to 10% can be in a treasury. Shares in treasury have no voting rights.

93
Q

Can investment trusts gear?

A

Yes

94
Q

What are the charges on investment trusts?

A

Older trusts as low as 0.5%
Modern 1-1.5%
Performance charges
Other costs (auditors, directors pay, matketing) 0.2-0.5%

95
Q

What might also be displayed on the key information document to do with charges for investment trusts other than ongoing charge figures?

A

Total expense ratio (TER) similar to OVF but includes performance charges and charges to other professionals.

96
Q

How can investment funds be accessed?

A

ISAs
Stockbrokers
Saving schemes

97
Q

What is the advantage of investment trusts over OEICS and Unit Trusts?

A

Lower fees.
More chance to benefit from buying at discount.
Allows gearing

98
Q

What is the disadvantage of investment trusts over OEICS and Unit Trusts

A

Higher risk from price changes
Gearing.

99
Q

What is the advantage of investment trusts over OEICS and Unit Trusts

A

What is the disadvantage of investment trusts?

RO2 Investment Principles And Risk (18 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions