Main forms of collective investments
Why are collective investments good for investors
Risk is spread
Investment manager does the work
Creating a portfolio of investments to spread risk so if one company isn’t doing well, other companies can offset
How are investment funds categorised
Location - Uk
Industry - technology
Type of investment - shares, gilts
What is a trust
An arrangement where a person gives an asset to another (trustee) to be looked after with a set of rules (trust deed)
What is a unit trust
A trust divided into units, each representing a fraction of a trusts total assets
Accumulation unit - automatically reinvests any income generated, would suit investor looking for capital growth
Distribution/income units - split off any income received and distribute to unit holders
How are units priced
Manager will calculate total value of trust assets divide the number of units that have been issued
Difference between price the unit is offered to investor (offer price) and price fund manager will buy it back (bid price).
Based on if there is more subscriptions or redemptions.
More Subscription = net inflow
More Redemption = net outflow
How are units bought and sold
Through trust manager or intermediaries. Will receive 2 docs.
Contract note: specifies price, fund, paid
Unit certificate: proof of ownership
How are unit trusts regulated and managed
Financial services and markets act 2000.
Authorised by FCA
What are the charges applied for unit trusts
Initial charge - covers cost of purchasing fund assets
Annual management charge - fee paid for use of investment manager
Taxation of unit trusts
CGT when making a gain
Risks of investing in unit trusts
Wide range in choices meaning higher risk of failure e.g. overseas funds and emerging markets
What is an investment trust
Public limited companies who invest in other companies
An investment trust is established under company law and listed on stock exchange as a PLC.
Net asset value per share
Total value of the investment fund divided by number of shares issued
The level of debt of company’s equity as a percentage.
Also a way of recognising how much a company’s operations are funded by borrowing rather than shareholder capital.
Taxation of investment trust
CGT on gain when they sell
What is a split-capital investment trust
Investment trust offering 2 or more types of share, most common are:
Income shares: receive income generated by portfolio
Capital shares: share of capital growth remaining end of fixed term
What is a REIT
Real estate investment trusts are a tax efficient way of investing in property. Investors get paid in dividends
Open ended and closed ended
Unit trust is open ended (trust manager can create more units to meet demand)
Investment trust is closed ended (shares available are fixed)
What is an OEIC
An open needed investment company is a limited company that uses investors funds to buy and sell the shares of other companies on their behalf.
No limit on how many shares you can but (open ended)
Charges of an OEIC
Annual management charge
Dilution levy - added to unit price of large funds in or out of OEIC
Risks of an OEIC
Similar to a unit trust
- Risk of investing in smaller company
- low risk because of professional investment manager and authorised by FCA
Type of investment based on life assurance. A lump sum is paid on death or maturity
Available from life assurance companies. You pay a lump sum
Non mainstreamed pooled investments
Investment schemes that do not fulfil the FCA criteria for being regulated.
Offer protection on capital invested. Also have high returns as-well as high risk. Appeal to the cautious investor who wants to benefit in the growth possibilities
SCARP and non SCARP
Structured capital at risk provides an agreed level of income/growth over investment period
Non-SCARP promises to provide minimum return of 100% capital invested as long as company is solvent (can pay off debts)
Risks of structured products
- counterparty risk
- market risk
- inflation risk
Wraps and platforms
Wraps are an internet based platform which holds all investors investments.
Usually offered by IFAs who charge a fee.
A fund supermarket does the same job but doesn’t have everything a wrap does.also charge a fee.
Both referred to as platforms