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CeMAP Unit 1 > Topic 8 Collective Investment Schemes > Flashcards

Topic 8 Collective Investment Schemes Flashcards

1
Q

These are all what?

  • Investment Manager Expertise
  • Diversification
  • Reducing Dealing Costs
  • Wide Choice of funds
A

Advantages of Collective Investment Schemes

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2
Q

What are the advantages of skilled investment managers to an investor?

A
  • Don’t need to research individual companies
  • Don’t need make any investment decisions
  • Don’t need to do any admin work
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3
Q

How can an investment profile with millions of pounds be an advantage?

A

Can negotiate deal reducing costs

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4
Q

How does having a large choice of investment funds help for collective investment schemes?

A

They cater for different styles on investment strategies, risk levels and preferences

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5
Q

What is “Diversification” ?

A

The spread of investments over many arrears to reduce risk over loss in one arrear

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6
Q
  • Location
  • Industry
  • Type of investment
  • Other forms of specification
A

How investment funds are categorised

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7
Q
  • Funds that aim to produce high income
  • Aim for capital growth
  • Balanced growth and Income
A

Another aim for collective investment funds

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8
Q

Investment funds that are managed according to their management style are?

A
  • Activity Managed Funds
  • Passively Managed Funds (tracker funds)
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9
Q

What is a Unit Trust?

A

Pooled Investment created under a trust deed

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10
Q

What is a Trustee?

A

A person or people who look after a trust

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11
Q

What is a Trust Deed?

A

The rules of the trust

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12
Q

How is a Unit Trust Categorised?

A
  1. Equity Trust
  2. Fixed Interest Trust
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13
Q

What is a Equity Trust?

A

A trust that invests in shares and pays a dividend

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14
Q

What is a Fixed Interest Trust?

A

Trust which invests in assets that pay interest

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15
Q

A Unit Trust is “Open Ended” this means what?

A

The trust manager must create more units if there is a demand

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16
Q

What does an Accumulation Unit do?

A

Reinvest income received from units to create more income

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17
Q

What do distribution/income units do?

A

Distribute any income received from units to unit holders

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18
Q

What is a key role of a trust manager?

A

To select investments that will achieve the trust’s objectives

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19
Q

How would a trust manager calculated a units price?

A
  • Calculate the total value of trusts assets plus costs
  • Divide this by the units issued
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20
Q

What are the 4 prices of a Unit Trust transactions?

A
  1. Creation Price
  2. Offer Price
  3. Bid Price
  4. Cancellation Price
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21
Q

What is the Creation Price?

A

The price at which a trust manager creates units

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22
Q

What is the Offer Price?

A

The price at which the investor buys units

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23
Q

What is the Bid Price?

A

Price at which the trust manager will buy back units from investors looking to sell units

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24
Q

What is the Cancellation Price?

A

The minimum bid price plus buying & selling costs.

Bid price may be higher at times to cover costs.

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25
Q

What is the Bid/Offer Spread

A

The difference between the offer price and the bid price.

Investment is reduced by the Charges

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26
Q

What is Single Pricing of Unit Trust?

A

Pricing system that is determined by the net flow of the fund

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27
Q

Subscriptions to a fund are greater than the redemptions

Is an example of?

A

Net Inflow

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28
Q

Redemptions to a fund are greater than the subscriptions

Is an example of?

A

Net Outflow

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29
Q

When a Unit Trust is in Net Inflow why are prices closer to the offer price?

A

To reflect the cost of purchasing assets

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30
Q

When a Unit Trust is in Net Outflow why are prices closer to the bid price?

A

To reflect the cost of assets being sold and to generate cash

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31
Q

What is Forward Pricing Basis?

A

Deals are requested are priced at the end of the dealing period so invest does know prices until the next day

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32
Q

What is Historic Pricing?

A

The price of deals made the previous day

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33
Q

Why does Historic Pricing give investors an unfair advantage?

A

It enabled Investors to manipulate the market as deals could be manipulated before the next dealing period

34
Q

When must a fund manager change to Forward Pricing?

A

Is a market moves move than 2% in either direction after the last valuation

35
Q

How are requests to buy/sell units done?

A
  • Telephone
  • Online
  • Emails
36
Q

What are the two documents an investor may receive from a fund manager?

A
  1. Contract Note
  2. Unit Certificate
37
Q

What does the contract note contain?

A
  • Specifies the fund
  • Number of units
  • Unit Price
  • Amount paid
38
Q

What does the Unit Certificate contain?

A
  • The Fund
  • Number of units held
  • Proof of unit ownership
39
Q

Units purchased via intermediaries will receive a statement showing holdings

True Or False

A

True

40
Q

What is a form of renunciation?

A

A form investor signs to sell units. It is on the reverse of the unit certificate

41
Q

What law are unit trusts authorised by?

A

Financial Services Market Act 2000

42
Q

What is the maximum amount a unit trust is allowed to exceed a funds net assets for a temporary period?

A

10%

43
Q

These are examples of what?

  • Setting out trust’s objectives
  • Ensuring adequate investor protection
  • Collecting & distributing trust’s assets income
A

Trustee’s Responsibilities

44
Q

What are the charges that relate to a Unit Trust?

A
  1. Initial Charge
  2. Annual Management Charge
45
Q

What is the percentage charge for a Unit Trust’s annual Management Charge?

A

0.5% - 1.5% of the fund’s value

46
Q

If a Unit Trust has more than 60% of assets in Cash/Fixed Interest what form of distribution will an investor receive.

Interest or Dividend

A

Interest

47
Q

If a Unit Trust has less than 60% of assets in Cash/Fixed Interest what form of distribution will an investor receive.

Interest or Dividend

A

Dividend

48
Q

Dividend income from Equity Trusts falls into which allowence

A

Dividend Allowance

49
Q

Fixed interest income from fixed interest trusts falls into which allowance

A

Personal Savings Allowance (PSA)

50
Q

How many shares will a unit trust typically invest in?

A

30 - 150 different shares

51
Q

What is a Investment Trust?

A

PlC which invests in stock and shares of other companies

52
Q

Are Investment Trusts are not listed on the Stock Exchange.

True or False?

A

False they are listed on the Stock Exchange

53
Q

What does “Closed Ended” mean in relation to an Investment Trust?

A

Means that they do not create new shares just because investors want them

54
Q
  • Stockbroker
  • Financial Advisor
  • Investment Trust Manager

Are ways that?

A

Shares can be bought in a Investment Trust

55
Q

What percentage do Investment Trust charge for services?

A

0.5% - 1.5%

56
Q

What is Net Asset Value Per Share? (NAV)

A

Investment funds assets less funds owed minus funds owed. Dividend by shares issued

57
Q

If an investment trust is trading at less than the Net Asset Value (NAV) it is said to be trading at?

A

Discount

58
Q

If an investment trust is trading at more than the Net Asset Value (NAV) it is said to be trading at?

A

Premium

59
Q

What is “Gearing” / “Leverage”

A

Is a level to which an investment Trust borrows to fund investment in shares

60
Q

What percentage are of income received by Investment Trusts must be distributed as dividends?

A

85%

61
Q

What are the 2 most common types of Split Capital Investment Trusts shares?

A
  1. Income Shares
  2. Capital Shares
62
Q

What is a Real Estate Investment Trust? (REIT)

A

A tax efficient property investment vehicle

63
Q

Why would an invester invest in a (REIT) over buying a property directly for tax purposes?

A

SDLT is charged at 0.5%

64
Q

For a REIT to pay no corporation tax on income or growth what percentage of income needs to come from Property Rentals?

A

75%

65
Q

How much of their profits must a REIT distribute to their shareholders net of tax?

A

90%

66
Q

What is the maximum number of shares a shareholder can own in a REIT?

A

10%

67
Q

A REIT can be held in an ISA, Junior ISA, Children’s Trust Funds, Personal pension.

True or False?

A

True

68
Q

What is an Open Ended Investment Company (OEIC)

A

A LLC that pools investors funds to buy/sell shares in other companies

69
Q

How are OEIC’s and Unit Trust similar?

A
  • Pooled Investment
  • Open Ended
  • FCA regulated
  • Tax for Investments & Dividend is done in the same way
70
Q

What does “Umbrella Company” mean in relation to an OEIC?

A

Made up of several sub-funds

71
Q

An OEIC can borrow to finance it’s operations for a long time.

True or False?

A

False. It is only allowed to borrow for short term purposes

72
Q

What is the regulation relating to OEIC’S?

A

Open Ended Investment Companies Regulation 2001

73
Q

What is the name of the person who overseas the operations of a OEIC?

A

Depository

74
Q

What is the name of the person who manages an OEIC from day to day?

A

Authorised Corporate Director

75
Q

The initial charge for a unit trust is what percentage?

A

3-5%

76
Q
  • Income
  • Capital Growth
  • Fixed Income
  • Access to Overseas Markets
  • Access to Specialist Markets
  • Index Tracking
A

Types of OEIC’S

77
Q

What is Swing Pricing of an OEIC?

A

Where the price swings toward either the bid or offer price of assets to reflect the current situation of Net Flow

78
Q

What are the charges for using an OEIC?

A
  • Initial Charge 3%-5%
  • Annual Management Charge 0.5%-1.5%
  • Dilution Levy
79
Q

“Reporting fund” of a Unit Trust or an OEIC means what is relation to an investor?

A

Liable for income tax and CGT on disposable of an asset

80
Q

“Non- Reporting fund” of a Unit Trust or an OEIC means what is relation to an investor?

A

Means they are only liable to tax on disposal of an asset

CeMAP Unit 1 (18 decks)

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