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CeMAP Unit 1 > Topic 8 Collective Investment Schemes > Flashcards

Topic 8 Collective Investment Schemes Flashcards

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1
Q

These are all what?

  • Investment Manager Expertise
  • Diversification
  • Reducing Dealing Costs
  • Wide Choice of funds
A

Advantages of Collective Investment Schemes

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2
Q

What are the advantages of skilled investment managers to an investor?

A
  • Don’t need to research individual companies
  • Don’t need make any investment decisions
  • Don’t need to do any admin work
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3
Q

How can an investment profile with millions of pounds be an advantage?

A

Can negotiate deal reducing costs

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4
Q

How does having a large choice of investment funds help for collective investment schemes?

A

They cater for different styles on investment strategies, risk levels and preferences

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5
Q

What is “Diversification” ?

A

The spread of investments over many arrears to reduce risk over loss in one arrear

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6
Q
  • Location
  • Industry
  • Type of investment
  • Other forms of specification
A

How investment funds are categorised

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7
Q
  • Funds that aim to produce high income
  • Aim for capital growth
  • Balanced growth and Income
A

Another aim for collective investment funds

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8
Q

Investment funds that are managed according to their management style are?

A
  • Activity Managed Funds
  • Passively Managed Funds (tracker funds)
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9
Q

What is a Unit Trust?

A

Pooled Investment created under a trust deed

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10
Q

What is a Trustee?

A

A person or people who look after a trust

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11
Q

What is a Trust Deed?

A

The rules of the trust

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12
Q

How is a Unit Trust Categorised?

A
  1. Equity Trust
  2. Fixed Interest Trust
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13
Q

What is a Equity Trust?

A

A trust that invests in shares and pays a dividend

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14
Q

What is a Fixed Interest Trust?

A

Trust which invests in assets that pay interest

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15
Q

A Unit Trust is “Open Ended” this means what?

A

The trust manager must create more units if there is a demand

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16
Q

What does an Accumulation Unit do?

A

Reinvest income received from units to create more income

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17
Q

What do distribution/income units do?

A

Distribute any income received from units to unit holders

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18
Q

What is a key role of a trust manager?

A

To select investments that will achieve the trust’s objectives

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19
Q

How would a trust manager calculated a units price?

A
  • Calculate the total value of trusts assets plus costs
  • Divide this by the units issued
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20
Q

What are the 4 prices of a Unit Trust transactions?

A
  1. Creation Price
  2. Offer Price
  3. Bid Price
  4. Cancellation Price
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21
Q

What is the Creation Price?

A

The price at which a trust manager creates units

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22
Q

What is the Offer Price?

A

The price at which the investor buys units

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23
Q

What is the Bid Price?

A

Price at which the trust manager will buy back units from investors looking to sell units

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24
Q

What is the Cancellation Price?

A

The minimum bid price plus buying & selling costs.

Bid price may be higher at times to cover costs.

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25
What is the Bid/Offer Spread
The difference between the offer price and the bid price. Investment is reduced by the Charges
26
What is Single Pricing of Unit Trust?
Pricing system that is determined by the net flow of the fund
27
Subscriptions to a fund are greater than the redemptions Is an example of?
Net Inflow
28
Redemptions to a fund are greater than the subscriptions Is an example of?
Net Outflow
29
When a Unit Trust is in Net Inflow why are prices closer to the offer price?
To reflect the cost of purchasing assets
30
When a Unit Trust is in Net Outflow why are prices closer to the bid price?
To reflect the cost of assets being sold and to generate cash
31
What is Forward Pricing Basis?
Deals are requested are priced at the end of the dealing period so invest does know prices until the next day
32
What is Historic Pricing?
The price of deals made the previous day
33
Why does Historic Pricing give investors an unfair advantage?
It enabled Investors to manipulate the market as deals could be manipulated before the next dealing period
34
When must a fund manager change to Forward Pricing?
Is a market moves move than 2% in either direction after the last valuation
35
How are requests to buy/sell units done?
- Telephone - Online - Emails
36
What are the two documents an investor may receive from a fund manager?
1. Contract Note 2. Unit Certificate
37
What does the contract note contain?
- Specifies the fund - Number of units - Unit Price - Amount paid
38
What does the Unit Certificate contain?
- The Fund - Number of units held - Proof of unit ownership
39
Units purchased via intermediaries will receive a statement showing holdings True Or False
True
40
What is a form of renunciation?
A form investor signs to sell units. It is on the reverse of the unit certificate
41
What law are unit trusts authorised by?
Financial Services Market Act 2000
42
What is the maximum amount a unit trust is allowed to exceed a funds net assets for a temporary period?
10%
43
These are examples of what? - Setting out trust's objectives - Ensuring adequate investor protection - Collecting & distributing trust's assets income
Trustee's Responsibilities
44
What are the charges that relate to a Unit Trust?
1. Initial Charge 2. Annual Management Charge
45
What is the percentage charge for a Unit Trust's annual Management Charge?
0.5% - 1.5% of the fund's value
46
If a Unit Trust has more than 60% of assets in Cash/Fixed Interest what form of distribution will an investor receive. Interest or Dividend
Interest
47
If a Unit Trust has less than 60% of assets in Cash/Fixed Interest what form of distribution will an investor receive. Interest or Dividend
Dividend
48
Dividend income from Equity Trusts falls into which allowence
Dividend Allowance
49
Fixed interest income from fixed interest trusts falls into which allowance
Personal Savings Allowance (PSA)
50
How many shares will a unit trust typically invest in?
30 - 150 different shares
51
What is a Investment Trust?
PlC which invests in stock and shares of other companies
52
Are Investment Trusts are not listed on the Stock Exchange. True or False?
False they are listed on the Stock Exchange
53
What does "Closed Ended" mean in relation to an Investment Trust?
Means that they do not create new shares just because investors want them
54
- Stockbroker - Financial Advisor - Investment Trust Manager Are ways that?
Shares can be bought in a Investment Trust
55
What percentage do Investment Trust charge for services?
0.5% - 1.5%
56
What is Net Asset Value Per Share? (NAV)
Investment funds assets less funds owed minus funds owed. Dividend by shares issued
57
If an investment trust is trading at less than the Net Asset Value (NAV) it is said to be trading at?
Discount
58
If an investment trust is trading at more than the Net Asset Value (NAV) it is said to be trading at?
Premium
59
What is "Gearing" / "Leverage"
Is a level to which an investment Trust borrows to fund investment in shares
60
What percentage are of income received by Investment Trusts must be distributed as dividends?
85%
61
What are the 2 most common types of Split Capital Investment Trusts shares?
1. Income Shares 2. Capital Shares
62
What is a Real Estate Investment Trust? (REIT)
A tax efficient property investment vehicle
63
Why would an invester invest in a (REIT) over buying a property directly for tax purposes?
SDLT is charged at 0.5%
64
For a REIT to pay no corporation tax on income or growth what percentage of income needs to come from Property Rentals?
75%
65
How much of their profits must a REIT distribute to their shareholders net of tax?
90%
66
What is the maximum number of shares a shareholder can own in a REIT?
10%
67
A REIT can be held in an ISA, Junior ISA, Children's Trust Funds, Personal pension. True or False?
True
68
What is an Open Ended Investment Company (OEIC)
A LLC that pools investors funds to buy/sell shares in other companies
69
How are OEIC's and Unit Trust similar?
- Pooled Investment - Open Ended - FCA regulated - Tax for Investments & Dividend is done in the same way
70
What does "Umbrella Company" mean in relation to an OEIC?
Made up of several sub-funds
71
An OEIC can borrow to finance it's operations for a long time. True or False?
False. It is only allowed to borrow for short term purposes
72
What is the regulation relating to OEIC'S?
Open Ended Investment Companies Regulation 2001
73
What is the name of the person who overseas the operations of a OEIC?
Depository
74
What is the name of the person who manages an OEIC from day to day?
Authorised Corporate Director
75
The initial charge for a unit trust is what percentage?
3-5%
76
- Income - Capital Growth - Fixed Income - Access to Overseas Markets - Access to Specialist Markets - Index Tracking
Types of OEIC'S
77
What is Swing Pricing of an OEIC?
Where the price swings toward either the bid or offer price of assets to reflect the current situation of Net Flow
78
What are the charges for using an OEIC?
- Initial Charge 3%-5% - Annual Management Charge 0.5%-1.5% - Dilution Levy
79
"Reporting fund" of a Unit Trust or an OEIC means what is relation to an investor?
Liable for income tax and CGT on disposable of an asset
80
"Non- Reporting fund" of a Unit Trust or an OEIC means what is relation to an investor?
Means they are only liable to tax on disposal of an asset

CeMAP Unit 1 (18 decks)

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