Knowledge Gaps - Collective Investments Flashcards
What is a collective investment scheme?
A way of pooling several investors funds amd having the fund professionally managed.
What is the difference between open and closed ended funds?
Open ended funds can expand or contract amount of units available depending on demand
Closed ended funds have a fixed number of shares and usually trade on a stock exchange
What are the two most common types of open ended funds in the UK?
Unit Trusts & Open Ended Investment Companies
How do unit trusts and oeic’s differ in their structure?
Unit trusts are set up as a trust, oeic’s are set up as companies
What the role of the unit trust manager in a unit trust and the trustee?
Manager - Manages the fund re asset allocation, investments, administration
Trustee - legal owner of the assets in the trust, protects the interests of investors by selecting the unit trust manager
What do investors receive when they pay money in to the Unit trust?
Units in the fund
Why is there a segregation of duties between the unit trust manager & trustee?
To ensure there is more protection for the investors by way of better management/ oversight
When must OEICs create new shares and redeem existing shares?
In line with customer demand
What is the responsibility of the Authorised Corporate Director (ACD) in an OEIC?
Responsible for the day to day management a bit like the unit trust manager in a UT.
What is the responsibility of the Depositary in an OEIC?
Similar to that of the trustees in a UT, oversees the ACD and holds the OEICs investments.
Do Unit Trust Managers & ACDs require authorisation by the FCA?
Yes
Do Trustees in UTs & Depositaries in OEICs require authorisation by the FCA?
Yes
What are the two ways UTs & OEICs can be priced and in which of the structures will each be used?
Single or dual pricing
Dual pricing used in UTs, single pricing used in OEICs
When investors want to buy in to a unit trust with dual pricing, at which price will they buy, the bid or the offer price?
The higher price is the offer price, this is the price investors use to buy units
How does single pricing work for OEICs?
The fund manager quotes a single ptice, this is based on the mid-market value of the funds assets
What charges does an individual have to take in to account when buying shares in an OEIC?
An initial charge at the point of purchase, also possibly exit fees
Also Ongoing fees and annual management charges
Where must OEICs & UTs disclose which type of pricing they use/
In the fund’s prospectus
Who will an investor deal with if they wish to buy in to a UT/ OEIC, and how would they place an order?
The fund manager, not stock exhcange. Can order on the phone or in writing.
What are income payments from UTs & OEICs known as?
Distributions
How are income payments subject to tax in UTs & OEICs?
In the same way as savings interest/ dividends
When can funds’ distribusions be liable to bond tax?
When over 60% of the fund is invested in bonds
Who is liable to CGT on gains made when selling UTs/ OEICs, the manager or the investor?
The investor
What is a corporate bond fund and what is an advantage of one?
A fund which invests in lots of corporate bonds to provide greater risk/ geography diversification
Advantages
- Greater diversification
- Can use them as a regular income
- Can use them to get a guaranteed payment in the future
How do Corporate bonds and Corporate bonds UTs/ OEICs differ in their tax treatment with regards to CGT?
Qualifying corporate bonds are exempt from CGT, wheras Corporate bond UTs/ OEICs are subject to normal CGT rules on encashment.
What is an investment trust?
A closed ended investment fund with a fixed capital base
Which act allowed the creation of investment trusts?
Companies Act 1862
Is an investment trust a company or a trust?
A company
What is the main difference between investment trusts and UTs/ OEICs?
Investment Trusts are closed ended so have a fixed capital base which can’t expand/ contract with demand
What is leverage/ gearing in investment trusts?
When the IT borrows funds to invest it in to more stocks/ shares for hopefully greater returns
What determines the price an investor pays for an Invetsment Trust?
The demand and supply of shares of it, not the Net Asset Value of the fund’s portfolio
What of piece documentation should collective investments keep up to date for theior investors/ advisers?
The prospectus
Why do collective investments need to produce a prospectus? `
To give information to investors/ advisers before they invest
Why do collective investment schemes produce KIIDs?
To provide investors with a summary of the fund’s objective, risk profile, charges & other info before they invest - also because the prospectus can be very long
How often do collective investment schemes have to provide regular reports on the fund and its performance?
half yearly & annually
