Investment

Question 1

6 benefits and 4 drawbacks of gold coins as an investment

Answer 1

Benefits:

• diversification
• reduces volatility
• negative correlation with equities and bonds
• hedge against inflation
• seen as a safe asset
• No CGT

Drawbacks:

• no income
• storage costs / could be stolen
• price affected by supply and demand
• high transaction costs

Question 2

Difference between physical and synthetic assets? (2)

Answer 2

Physical = own the asset

Synthetic = purchase derivatives in the asset

Question 3

What are fettered and unfettered funds? (4)

Answer 3

• fettered finds are exclusive to the provider
• in house funds
• unfettered can use funds from other managers
• as well as their own

Question 4

State and explain one advantage of fettered and one of unfettered funds

Answer 4

• fettered can be cheaper to run as:
• no additional charge above the standard amc is allowed
• unfettered has broader fund choice and so
• if one runs is under performing then it can easily be replaced

Question 5

How do manager of manager funds work? (5)

Answer 5

• overall manager decides the asset allocation
• appoints manager for each sector
• and monitors its performance
• can replace the managers
• funds are segregated
• and discretionary

Question 6

LISA rules

Answer 6

• limit of £4K
• 25% bonus
• 18-39 years old
• s and shares and cash versions
• must be used to buy first house or retirement (age 60) to get bonus
• if so can access with out penalty
• 25% penalty on withdrawals (including bonus paid)
• can only buy first house or retirement without penalty

Question 7

Two advantages and two disadvantages of manager or manager funds (4)

Answer 7

• overall manager has day in investments
• no requirement to sell a fund and buy a new one
• can replace the managers

Disadvantages:

• new manager left with what the old manager chose to buy
• limited number of managers willing to run such a mandate

Question 8

How is a fund of funds structured?

Answer 8

• fund invests in a selection of funds
• which are either fettered or unfettered
• provider selects individual funds
• monitors them
• with the aim of maintaining a balance between them and maximising returns
• if it is necessary to change the exposure within a fund then the provider can do this by selling a fund and buying a new one

Question 9

Information needed when applying for an additional permitted subscription in respect of an isa of a widow (6)

Answer 9

• name
• Address
• DOB/ birth cert
• date of death/death cert
• NI number
• marriage cert

Question 10

What investments can be held in an in ivory finance isa (3)

Answer 10

• Loans to companies
• cash
• Peer to peer lending