O Chapter 11 Other investment classes Flashcards
(7 cards)
Outline the purpose of collective investment schemes from the perspective of both the investor and the management of the CIS
Investor:
Diversification and lower portfolio risk
Access to expertise
Access to larger / unusual investments
Economies of scale (reducing investment expenses)
Possible tax advantages
Management:
To follow the stated investment objective
To create return for investors commensurate with the level of risk taken
Define closed-ended in the context of CIS
In a closed-ended scheme, such as an investment trust company (ITC), once the initial tranche of money has been invested the fund ids closed to new money. After launch, the only way of investing in the ITC is to buy shares from a willing seller.
Define open-ended in the context of CISs
In an open-ended scheme, such as a unit trust or open-ended investment company, managers can create or cancel units in the fund as new money is invested or disinvested.
Define NAV per share for an ITC
Net asset value per share is equal to the value of the underlying assets of the company divided by the number of ordinary shares.
If gearing is allowed, the underlying assets would be net of the debt liabilities.
Outline 10 investment and risk characteristics of an investment trust company
Stated investment objectives written into prospective/offer for sale document
Closed-ended
Public company, governed by company law
Often quoted on an exchange
Can raise both debt and equity capital
Operated by company directors and investment managers
Directors and investment managers receive fees
Investors buy “shares” in the ITC
Share price is determined buy supply and demand
Share price often stands at a discount to the company’s NAV per share
Outline 9 investment and risk characteristics of a unit trust
Stated investment objective
Open-ended
Trust, governed by trust law
Limited ability to gear
Operated buy trustees and management company/investment managers
Trustees (insurance company/large bank) ensure
