OEICS and Unit Trusts Flashcards
What is the set up of an OEICS?
As companies
Own corporate code separate to Companies Act
Authorised Corporate Director (ACD) and depository
What is the set up of a Unit Trust?
Trust fund is legal owner of underlying assets
Legally binding trust deed
All decisions for benefit of investors
What does open ended mean?
Shares/units can be created/cancelled dependent on demand
Size of fund constantly changing
How is an OEIC priced?
Single price based on underling fund value
Not based on supply and demand
Daily pricing - mid market price
How is a Unit Trust priced?
Previously bid/offer spread - now single price
Daily pricing as per OEICS - mid market price
Adjusted for income/charges
What is the taxation on the fund for UT & OEICS
If authorised not subject to taxation on any gain
Income taxed at source no further tax
Unfranked income - pays tax at 20%
Can deduct management expenses when calculation tax on unfranked income
How is the investor of a UT/OEIC taxed on gains?
Subject to normal CGT regime on disposal
How is the investor of a UT/OEIC taxed on income?
If fixed interest fund - income payable taxed as interest subject to normal income tax treatment of savings income
Other UT/OEICs = paid in form of dividend and subject to normal dividend tax treatment
What is equalisation?
Investors purchase at price that reflects income accrued since last distribution
When investor then received income - part of it has already been purchased - capital part
No income tax on the capital part of the payment - represents partial refund of capital
Deduct from acquisition cost for CGT
What are the 3 types of authorised fund?
UCITS schemes
Non-UCITS retail schemes
Qualified Investor Scheme (QIS)
What is a UCITS scheme?
Meets criteria of the European Directive:
Undertakings for Collective Investments in Transferable Securities
Must be open ended
Can be marketed across EU borders
What is a non-UCITS scheme?
Do not meet UCITS criteria - can only be marketed to UK investors
What is QIS
Can only be promoted to professional investors or very experienced investors
What are the diversification requirements for a UCITS retail scheme?
Max 10% of fund value in any one investee company
Can only exceed 5% of fund value in 4 different companies
Means:
4 up to 10%
Rest max 5%
Min 16 funds
Exception for replicating tracker fund - one company investment up to 20% or exceptionally 35%
What is a UCIS?
Unregulated collective investment scheme (UCIS)
Not been authorised by FCA and can’t be marketed to UK retail investors, professionals only
Not subject to limitations on investment powers (apart from restrictions in the trust deed)
May not be covered by FSCS
What is the max exposure to unlisted securities/non approved securities in a UCITS OEIC?
10% of fund
How many sectors in fund classification, what are the Investment Association sector definitions and what % of assets must be in each sector to qualify?
Over 30
Capital Protection
Income
Growth
Outcome targeted
80%
What features must the market a UT/OEIC is looking to invest in have?
Liquid Regulated Operating regularly Recognised Open to the public
What are the borrowing rules for retail UCITS?
10% of fund value only on a temporary basis
Non-retail can borrow same but doesn’t have to be temporary
What are the responsibilities of the Unit Trust Manager?
Day to day running
Manage in line with regulations, deed and scheme particulars - for AMC
Promotion. advertising, investment selection and administration of fund
Authorised to conduct investment business
Have adequate financial resources
Supply information to trustee on request
Maintain record of units
What are the trustees responsibilities of a Unit Trust?
They are legal owners Regulated by FCA Must be independent from management group Ensure investors are protected Hold and control the assets Monitor managers actions Keep register of unit holders Distribute income
What is ACD of an OEIC responsible for?
Compliance with investor protection Investment management Shareholder register Management day to day Account preparation
What is the independent depositary of an OIEC responsible for?
Overseas management -pricing, dealing etc
Checks ACD carries out it’s investment and borrowing powers correctly
What is a dilution levy for an OEIC?
Applied where large inflows and outflows occur to cover dealing costs
Paid into fund not to manager in order that other investors are not disadvantaged
What is a fund of funds?
Invests in funds managed by other managers
Fettered = funds run by same mgmt. group
Unfettered = funds from entire market place
No CGT on switch between funds
What is Manager of Managers funds?
Each asset class has own external manager
Overall manager - appoints, asset allocation and monitors
What is the taxation on investor of Reporting Funds (overseas)?
Income = same as UK funds accumulated as well as distributed income
normal CGT
What is the taxation on investor of Non-Reporting Funds (overseas)?
Gains subject to income tax not CGT
Tax only paid on distributed income
How can OEICS protect other investors against large outflows and or liquidity crisis?
Move to weekly valuations
Apply fair value pricing
Apply dilution levy
Apply fund dealing suspension
Additional for liquidity issues:
Sell properties - forced sale
Borrow to fund redemptions
