Topic 8: Collective Investments Flashcards
With regard to unit trusts, what does the term ‘open‑ended’ mean?
a) Clients can buy more units.
b) The fund manager can create an unlimited amount of units according to demand.
c) The fund manager does not need to value the units.
d) There is flexibility in the taxation of unit
b) The fund manager can create an unlimited amount of units according to demand
A unit trust fund’s assets are owned and controlled by the fund manager. True or false?
False. They are owned and controlled by the trustee
Who is responsible for payment of capital gains tax on any gain realised on the encashment of a unit trust?
a) The unit holder.
b) The trustees.
c) The unit trust company.
d) The fund manager
a) The unit holder
An investment trust is best described as:
a) a unit‑linked, single‑premium whole‑of‑life policy investing solely in shares.
b) a trust that invests solely in fledgling companies.
c) a company that invests in the shares of other companies.
d) a partnership that invests in gilt
c) A company that invests in the shares of other companies
How can a private individual invest in an investment trust?
a) The investment trust manager creates more units.
b) By purchasing shares of the investment trust company on the stock exchange.
c) The fund manager issues new shares.
d) By completing an application form for a share account and submitting it to the investment trust trustees.
b) By purchasing shares of the investment trust company on the stock exchange
What potential benefit does gearing offer to an investment trust that is not available to a unit trust or OEIC?
An investment trust can borrow in order to take advantage of investment opportunities. Unit trusts and OEICs cannot do this
How are shares in an open‑ended investment company priced?
a) There is a bid and offer price based on the underlying value of the shares.
b) Shares are based on a historic valuation.
c) There is one price, based on the value of the assets divided by the number of shares.
d) There is a cancellation price at which all shares are trade
c) There is one price, based on the value of the assets divided by the number of shares
What rate of tax is deemed to have been deducted from the investment fund underlying an investment bond?
a) 0 per cent.
b) 10 per cent.
c) 20 per cent.
d) 40 per cent.
c) 20 per cent is deemed to have been taken within the investment with a potential further liability of 20 per cent for higher‑rate taxpayers or 25 per cent for additional‑rate taxpayers.
Investment bonds are attractive to investors because withdrawals are tax‑free. True or false
False. The investor may withdraw up to 5 per cent of the value of the original investment per annum without paying tax at the time of withdrawal but a tax liability may arise when the bond matures, on encashment of the bond or on death of the bondholder
Noah is a higher‑rate taxpayer and is considering a range of investments. He wants to know which investment, out of unit trusts, investment trusts or OEICS, would be most likely to help him meet his objective of achieving capital growth. What would you advise?
a) A unit trust.
b) An investment trust.
c) An OEIC.
d) Any of the above.
d) Noah could choose any of the above. The fact that he is a higher‑rate taxpayer has no bearing on his decision – they are all taxed in the same way.
