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RO2 keys > 6 > Flashcards

6 Flashcards

1
Q

Collective investment schemes

A

Unit trust & OEOIC

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2
Q

FSCS protection for OEIC & unit trust

A

£85k

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3
Q

How are unit trusts protected?

A

By trustees and trust deed

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4
Q

How are OEIC protected?

A

By independent depository and company law

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5
Q

Which of OEIC and unit trusts are open ended?

A

Both

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6
Q

Net asset value

A

Total assets of shares equal total assets held

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7
Q

Which of OEIC and trust funds must follow net asset value?

A

Both

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8
Q

Can OEIC and init trust shares be traded on the stock market or death?

A

Death only

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9
Q

Investment association of an OEIC and unit trust

A

Separates them into sections

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10
Q

Types of index tracking funds:
- Full relocation
- Stratified sampling
- Optimisation/synthetic

A

F - Fund owns shares in proportion to index
S - sample of funds held but not replicating index
O - buys and seeks stock within index using a computerised model

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11
Q

Efficient market hypothesis

A

All information is reflected in the market and their prices so the people who would support this would use index trackers only

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12
Q

Negative screening
Positive screening
Neutral approach

A

Neg. - avoid unethical practices
Pos. - actively seek out ethical invest.
Neut. - choosing socially responsible firms

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13
Q

What must a firm by to market in the UK?

A

Authorised by the FCA

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14
Q

Types of authorised funds:

A

Undertaking for financial investments (UCITS) scheme - once authorised can be marketed in the EU

Non-UCITS retail scheme - cannot be marketed in the EU

Qualified investors scheme - cannot be marketed other than to professional investors

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15
Q

What main thing must a firm be to be classed as a UCITS?

A

Diversified

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16
Q

5 rules of diversification for UCITS

A

No more than 10% in 1 share

Max. of 4 companies can have max holding of 10%

Any other shares must not exceed 5%

Min. of 16 holdings given the above

Atleast 90% of investments must be in approved securities

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17
Q

Exceptions to diversification rules for UCITS

A

If replicating index tracker funds then max. holding for one company is 20% (35% in extreme cases)

Lower limit of 6 securities if holding government bonds

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18
Q

What sets, what a scheme can or can’t invest in within an OEIC or trust fund?

A

Trust deed or scheme booklet

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19
Q

What % can UCIT, QIS’s and Non-UCITS gear upto and which one can be permanent?

A

10% and Non-UCITS can be permanent

Upto 100% of net asset value for QIS’s

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20
Q

Unregulated Collective Investment Scheme (UCIS)

A

Unregulated investment so cannot marketer itself in the UK to retail clients

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21
Q

AIF 3 main aims?

A

Enhance supervisory practices to prevent market instability

Improve investor protection

Promote efficiency and competition

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22
Q

4 Rules of a unit trust

A

Trustee legally owns assets

Manager is responsible for day to day running

Can only be constituted if signed a trust deed

Regulated by FCA and manager is authorised by the FCA

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23
Q

How to remove a unit trust manager?

A

If receive a majority vote from unit holders

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24
Q

What is the purpose of the register in a unit trust?

A

Hold information on unit holders name, holding amount and type, date unit was registered

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25
Q

Who is responsible for ensuring the register of a unit trust is upto date?

A

Both trustee and manager of unit trust

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26
Q

How often are reports are done for a unit trust?

A

Half yearly

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27
Q

Difference between an accumulation unit trust and income unit trust and mixed fund unit trust

A

Accumulation - All income produced is put back into investment

Income - pays income to investor

Mixed fund - mix of the above

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28
Q

What must be provided to purchase a unit trust OEIC and investment trust?

A

Key features document or key investor information document

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29
Q

Within what time-frame must a payment be made when a unit trust unit is sold by an investor?

A

Manager of fund must pay within 4 days after receipt of signed document

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30
Q

What is the difference between single and dual priced unit trusts

A

This is how units are quoted:

Dual price - different price to buy and sell so difference is usually charges

Single price - same price to buy and sell. Charges are usually separate

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31
Q

What is the bid and offer price?

A

Bid price - price selling at

Offer price - price buying at

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32
Q

What is the bid offer spread?

A

Difference in price between buying and selling units including costs

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33
Q

Unit trust box management

A

When a unit trust buys back units it then sets them a side to reissue to another investor and are not cancelled

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34
Q

How to price a unit trust is based on future or past value meaning?

A

Historic value so buy at yesterdays published price

Future value so buy at tomorrows yet to be calculated price

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35
Q

OEIC

A

Set up as a limited company and find is split into shares which are unlimited and handled by a fund manager, known as the authorised corporate director

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36
Q

Most OEIC operate on a what priced basis?

A

Single price

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37
Q

Main differences between OEIC and unit trust

A

OEIC
- limited company
- issue shares
- Ran by directors
- Safeguarded by a depository

Unit trust
- trust structure
- issues units
- ran by a manager
- safe guarded by trustees

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38
Q

What is a manager of managers trust fund/OEIC?

A

A manager is appointed to find the best fund managers in each sectors to invest funds

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39
Q

What is a fund of funds trust fund/OEIC? (Fettered and unfettered)

A

Fettered - spread investment across several funds

Unfettered - investments in funds and companies therefore more expensive

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40
Q

FCA 3 categories for offshore funds

A

UCITS - auto recognition from FCA

Designated territories - FCA sees as equal protection to UK

Non designated territories - not recognised by the FCA and prohibited from marketing in the UK

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41
Q

What is the European Union savings directive and what did this change to?

A

Auto exchange of information between member states

Changed to council directive

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42
Q

Are investment trusts perceived as higher or lower risk than OEIC & trust funds?

A

Higher risk

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43
Q

What is an investment trust

A

Traded as a public limited company but they invest in other companies or investments

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44
Q

How do you calculate the net asset value of an investment trust?

A

Assets - liabilities

Can divide by number of shares to get net asset value per share

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45
Q

Types of investment trust

A

Conventional - issue one main class of equity shares

Split capital - issue multiple classes of shares and usually has a fixed wind-up date

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46
Q

What is a limited life investment trust?

A

Set maturity date of investment trust and at end date the NAV is distributed

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47
Q

What is a hurdle rate when dealing with split capital investment trusts?

A

When an investment trust has a fixed maturity date, it is the rate at which the investment must grow at to pay each class of share on the wind up date

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48
Q

Scoring an asset cover for an investment trust

A

Asset cover of 1 - trusts asset exactly match the money required to repay all share classes at wind up

Over 1 - assets more than liabilities

Below 1 - assets less then liabilities

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49
Q

What is a split capital share?

A

Give entitlement to income, capital or dividends

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50
Q

What are warrants in regards to investment trusts?

A

Right to buy shares at a fixed price at a fixed date

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51
Q

Are warrants for investment resists tradable on the stock exchange?

A

Yes

52
Q

When a warrant is executed, how does this effect the NAV?

A

It becomes diluted

53
Q

What can an investment trust do that a trusts fund or OEIC cannot do?

A

Use gearing

54
Q

What is gearing?

A

Ability to lend money to buy shares in other assets

55
Q

What does 100 mean regarding gearing?

What does 130 mean regarding gearing?

A

100 - no gearing

130 - company is 30% geared

56
Q

Are investment trusts usually more or less expensive than an OEIC or unit trust?

A

Less expensive

57
Q

With profits based policy

Non profit policy

A

With- If payments are met then a fixed price of sum assured will be paid to policy holder at some point. But can return lower than expected if investments do not go to plan

Non - regular bonus payments are added to the sum assured for redemption date. But can return lower than expected if investments do not go to plan

58
Q

Types of bonuses for with profit policies:

Annual

Terminal

Special

A

Annual - given annually based upon performance

Terminal - find manager reviews performance from start of investment and bonus given based upon this

Special - awarded if exceptionally good returns in 1yr

59
Q

Traditional With profit policy

Low cost with profit policy

A

Traditional - bonuses paid each year which increase sum assured

Low cost - DTA life policy instead

60
Q

Market value reduction

A

Like an ERC when fund has performed badly due to market reductions. So reduces value when withdrawing from fund at certain times.

61
Q

What is pound cost averaging

A

Benefit from fluctuating prices by paying monthly rather than lump sum eg buying 100 shares when price is at 50p, 25 shares when price is £1, buying 100 shares when price is 50p again.

62
Q

Maximum investment plan investment limit?

A

£3,600 per yr

63
Q

Segments of an investment bond

A

Split investments into categories of assets which are proportionally identical

64
Q

Unitised with profits based investment

A

Value of unit price cannot go down and invested in several sectors and asset classes

65
Q

How much can you with draw from a bond each year without being taxed? And is it cumulative? And when are they taxed?

A

5% and yes and taxed when withdrawn 100% of their original investment amount

66
Q

What is a bond?

A

Gives bonuses each year and returns original investment at the end of the term

67
Q

High income bond

A

Based on packed derivatives so depend on performance of those investments

68
Q

Guaranteed growth bond

A

All income made is added to capital at maturity and paid in full

69
Q

Unit linked bond

A

Have no maturity date so have a whole of life policy and can be cashed at any time. Income can be taken or rolled up.

70
Q

Distribution bond

A

Must have a maximum equity content of 60% and a yield of atleast 110% of the FTSE all share index.

71
Q

Guaranteed equity and protected bonds

A

Guarantees 100% of equity and 90% for bonds. Investment is linked to an index

72
Q

Hard protection and soft protection on a bond

A

Hard - capital guarantee exists

Soft - protection subject to conditions

73
Q

Child benefit limit when will income hinders amount received?

A

£50k income

74
Q

Friendly society investment limits

A

£270 per annum or £25per month for total amount invested not per policy

75
Q

Age restriction for friendly society policy

A

No age restrictions

76
Q

Is there any tax for friendly society or buyer on friendly society policy?

A

None

77
Q

Exchange traded funds

A

Tracker products following an index

78
Q

Why do exchange traded funds have a tracker error?

A

Due to charges, there is a distortion with index performance and performance of the fund

79
Q

Exchange traded commodity

A

Tracks a commodity price

80
Q

Exchange traded notes are issued by who? And what are they?

A

Banks, they track a currency

81
Q

Synthetic fund

A

Uses swaps (a type of derivative) to replicate the index without actually holding the asset

82
Q

What fund is always synthetic?

A

Exchange traded notes

83
Q

What type of trusts can buy shares in property?

A

Authorised trusts

84
Q

Difference between property unit trusts and investment trusts

A

UT - can borrow to buy in property and unit price must match the NAV

IT - can borrow but reluctant to do so heavily and share price is independent of the NAV

Both often come with a 6month tie in so unable to withdraw funds

85
Q

Insurance company property bonds

A

Life assurance company with a fund specialising in commercial property with value of units directly linked to value of property

86
Q

Real estate investment trust

A

Close ended company which is listed on the stock exchange. Stamp duty payable by trust also issuing only 1 class of share.

87
Q

Ring fenced (non taxable)and non ring fenced real estate (taxable) investment trust CGT rules

A

Ring fenced - property letting business as main element and exempt from corporation tax on certain sales

Non ring fenced - all other property services such as property management etc. subject to coroporation tax

88
Q

Retail estate investment trust 4 conditions

A
  • Must be atleast 75% from ring fenced element
  • Interest on borrowings atleast 125% covered by rental profits
  • atleast 90% of ring fenced elements profit must be distributed within 12 months from end of accounting period
  • property develops allowable providing for profit purposes in the future
89
Q

Are dividends ring fenced or non ring fenced for real estate investment trusts

A

Non-ring fenced (taxable)

90
Q

Property authorised investment fund

A

Authorised fund that moves tax treatment from fund to the investor

91
Q

Property authorised investment fund 3 conditions

A

Atleast 60% of income and assets must be in property

Max of 10% can be owned by 1 person

Must be widely availbek

92
Q

What is a knowledge intensive company 3 criteria?

A
  • must have spent atleast 15% of costs on innovation or R&D and in the process of inventing intellectual property

or

  • atleast 20% of employees hold a higher education and get directly involved in R&D
93
Q

Enterprise investment scheme, seed enterprise investment scheme and venture capitalist trust

A

EIS - help small companies with investment by giving tax relief

SEIS - help start ups with investment and tax relief

VCT - collective investment ran by a fund manager buying shares in smaller companies

94
Q

What 2 ISA’s must you be 18 to own?

A

Stocks and shares, innovation finance ISA’s

95
Q

If someone dies what happens to an ISA’s tax exempt status?

A

Immediately lost and forms part of the estate unless for spouse

96
Q

What happens if someone with an ISA dies and passes estate to spouse?

A

Annual subscription increased on top of £20k allowance for spouse to move funds into their name and have 3yrs to switch names from date of death

97
Q

Cash ISA

A

Deposit based investment with interest tax free

98
Q

What ISA can UCITS not be held in?

A

Stocks and shares ISA

99
Q

Innovation finance ISA

A

Peer to peer lending

100
Q

Life time ISA

A

Max of £4per yr

25% bonus given for 1st house or retirement

Start 18-40, invest until 50, withdraw from 60

101
Q

HTB ISA

A

Max £1k initially with £200pm limit and £12k limit total

25% bonus for FTB

102
Q

Stakeholder products

A

Low charge products available to customers

103
Q

Cash ISA min. premium and min. interest

A

Min. £10 premium

Min. interest of 1% below base rate

104
Q

Stocks and shares ISA min. premium?

A

£20 per month

105
Q

ISA transfer 3 rules:

A

Current tax yr can only be transferred in full. Where as previous yr can be in parts

Cash to cash ISA must complete within 15 days and others within 30 days

Innovation finance cannot be transferred between providers but can be transferred to cash then transfer

106
Q

Child trust fund

A

Gov. gives a £250 voucher that is invested and was told would get further £250

107
Q

Child trust fund max. contribution

A

£9k per birth yr

108
Q

Can a person have a child trust fund and a Junior ISA?

A

No but can transfer

109
Q

ISA’s contribution limits go from tax yr or calendar yr?

A

Tax yr

110
Q

Purchased life annuity

A

Give lump sum to be paid income til death

111
Q

Derivative

A

Agreement to buy or sell at a set price at a set future date

112
Q

Can a derivative agreement be sold or bought?

A

Yes

113
Q

What is a future regarding a derivative?

A

Legally binding agreement to buy or sell an asset at a set date

114
Q

What is an option when referring to a derivative?

A

Option to buy or sell at a set future date

115
Q

Variation margin of a future on a derivative

A

When the collateral sits with the side with the side destined to make a profit as less likely to default (the side who gets more profit gets more margin as in profit margin)

116
Q

Marking to market on derivatives

A

The process of revaluing derivatives daily

117
Q

Call option of a derivative

Put option of a derivative

A

Call option - gives option buyer right to buy if they wish

Put option - gives option buyer right to sell if they wish

118
Q

European option of a derivative

American option of a derivative

A

EU - can only be exercised at expiry

US - can be exercised any time upto expiry

119
Q

What is writing an option on a derivative?

A

Selling an option

120
Q

Hedge funds

A

Fund manager with a pool of investments

121
Q

What is a fund of fund hedge fund

A

Spread investors money over a range of hedge funds

122
Q

What is an absolute return fund?

A

A fund that tried to make a return regardless of market conditions. Essentially the hedge fund of the UK

123
Q

Sharia compliant investment

A

Does not pay or receive interest

Does not invest in anything against Muslim values

124
Q

What is an equalisation payment for a unit trust?

A

Enables unit trust to distribute dividends equally rather than based upon time owned as CGT then due for investor on gains made instead of income tax

125
Q

Max. contribution within a qualifying life assurance investment

A

£3,600 per annum

126
Q

Personal savings allowance of CGT?

A

£12,570

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