Unit Trusts, OEICS and Investment Companies Flashcards
1
Q
Benefits of Collective Investment Schemes (5)
A
- Good way to invest small sums of money
- Professional fund managers managing
- Balanced portfolios
- Can pursue particular objectives
- individuals risk is reduced by wide spread of investments
2
Q
Characteristics of Unit Trusts or OEICs (Funds)
A
- Units or Shares sold representing a small portion of a bigger investment
- Unit Trusts - Investments held by Trustees
- OEICs - Investments held by independent depositary
- Fees include: Annual mgmt. charge and sometimes initial charge
- Are open ended - units/shares can be created and cancelled
3
Q
Name the Investment Association sectors focuses
A
- Capital protection
- Income
- Growth
- Specialist fund
- Targeted funds
4
Q
Who checks the IAs sectors and rules
A
- Overseen by Sectors Committee who check monthly
- Must invest 80% of assets in relevant class
- If income, it must achieve a yield of at least 90% of the relevant index
5
Q
Explain Index-Tracking funds
A
- Aim to mirror performance of particular index
- If big enough may match exactly
- otherwise use sampling or optimisation
6
Q
What do supporters of index trackers argue
A
- few manages out perform consistently
- Outperformance generally mean higher risk
- lower charges
7
Q
Explain Ethical Funds
A
- Use negative screening or positive criteria
- Somewhere in between Ethical and normal investing is investment in Socially Responsible Companies
8
Q
What are the Investment risks with OEICs/Unit Trusts
A
- Depends on the underlying investment
- wide spread of investments reduce impact of 1 company
9
Q
Explain the investment powers and restrictions
A
- FCA Handbook COLL sets out rules for establishing and operating auth schemes.
- Trust deed must contain that the fund can invest in any securities or derivatives market eligible under FCA regulations
- Detailed investment limits must be set out in scheme particulars.
10
Q
what % of OEIC / Unit trust must be invested in approved securities?
A
90%
11
Q
What makes a market ‘eligible’
A
- must meet the following criteria:
- regulated
- operating regularly
- recognised (by stat body or govt)
- open to public
12
Q
Explain what is meant by UK UCITS
A
- UK Undertakings for Collective Investment in Transferable Securities.
13
Q
Explain the diversification rules of UCITS
A
- Non-Tracker: cant hold more than 10% of funds in 1 company
- Only 4 at 10%
- rest must be below 5%
- Tracker: can hold upto 20% in one company (35% in exceptional circumstances)
- Max holdings of 20% in any one group
- If more than 35% held in govt gilts by a single issuer - must be in at least 6 companies - none more than 30%
- upto 20% in other unit of collective scheme
- no more than 20% in cash
14
Q
How much can UK UCITS borrow?
A
- Retail UCITS - 10% on temporary basis against known future cashflows
- Non-Retail UCITS - 10% on permanent basis
15
Q
Which funds can be freely marketed
A
- Funds authorised by the FCA
