Collective Investment Schemes (CIS) - CH2

Question 1

What is a CIS?

Answer 1

Collect money with other people to participate in a wide range of investments that are not feasible for individual investors (shares the cost).

Question 2

What are the characteristics of CIS?

Answer 2

• Invests in transferable securities.
• Open-ended.
• Publicly marketed.

Question 3

What are the two types of CIS?

Answer 3

Regulated and Unregulated.

Question 4

Define a Regulated CIS?

Answer 4

CIS recognised by a local regulatory body.

Question 5

Define an Unregulated CIS?

Answer 5

Schemes not authorised / recognised by local financial regulators.

Question 6

What are the pros of Unregulated CIS?

Answer 6

Not subjective to restrictions that regulated CIS are?

Question 7

What are the cons of Unregulated CIS?

Answer 7

• Speculative - high volatility, illiquid, high leverage.
• Marketing restrictions.
• Not suitable for more than a small proportion of a portfolio.

Question 8

What are the pros of a Regulated CIS?

Answer 8

CIS easier to market to the public. Overseas CIS can be marketed to the public if they meet a certain criteria.

Question 9

How liquid are UCIS?

Answer 9

Illiquid - no daily liquidity. Have to wait until the end of the month + 14 days.

Question 10

How long term are UCIS?

Answer 10

Very (due to lack of liquidity).

Question 11

Other risks of UCIS?

Answer 11

• No guarantee of capital returns.
• High fees - depends on the fund + performance fees.
• Gearing - borrowed funds enhance gains and losses.
• Currency (off-shore investing) - if value of the base currency strengthens against the currency of CIS, this is advantageous for the investor.
• Single asset - UCIS is a project, thus success is based on certain criteria.

Question 12

For fees, what is a Water-mark?

Answer 12

If the funds performance is worse than last year, the fund manager is not able to receive additional fees for performance next year.

Question 13

What are characteristics of Open-Ended Collective Investment Funds?

Answer 13

• Issue and redeem shares in the scheme at any time.
• Value of shares are in proportion to the total value of the underlying investment portfolio.
• Investors directly approach funds to purchase and sell shares - price is based on the value of the underlying portfolio.
• Can expand and contract the size of the fund based on consumer demand.

Question 14

What are characteristics of Close-Ended Collective Investment Funds?

Answer 14

• Set num of shares issued to the public when the fund is first setup.
• Shares are traded on the stock market.
• Fixed capital of fund.
• No expansion or contraction.
  (Example are investment trusts).