Week 4 Flashcards

Question

Types of Managed funds: Insurance Bonds

Answer 1

Life insurance policies backed by investments within a life office statutory fund. Special Taxation Provisions,10 year rule & Tax Paid Insurance Contract- Use of PDS Do not pay income or dividends to investors. Income retained within bond and used for further investment Joint ownership, Transfer & Beneficiaries 125 % additional contribution rules Early Redemption rule & 30% Rebate of growth Before 9th year > Total growth @ Investors MTR* In 9th Year > Two Thirds assessed as income* In 10th Year > One Third assessed as income* > 10 years > Growth is Tax Free to the investor *less a tax offset of 30%

Answer 2

Funds which are available on ASX: Listed investment companies (LICs): Listed investment trusts (LITs) Real estate investment trust (REITs) Exchange traded Funds (ETFs)

Answer 3

You buy shares in a company which invests. Can pays franked dividends. Closed fund, so management does not accept more money coming in or out.

Answer 4

You buy units in the trust in closed end unit trust. Similar to a LIC but is a trust, franking dividends depends on type of income earned. Must pay all distributions to unit holders.

Answer 5

Gives investors access to property assets which normally need large amounts of money e.g. industrial property etc Operates as a unit trust

Answer 6

Relatively new and many kinds assets | Fund follows a passive strategy sometimes called an index strategy. E.g. a share market index (ASX200)

Answer 7

``` Investment Type Regular Investment Superannuation Account based Pension Geographical Location Asia, US, UK, Japan, Europe, Global Product Type Retail, Wholesale, Industry and Corporate ```

Answer 8

Asset allocation Performance Fees Risk Reporting Accessing the funds in the scheme Real returns The management expense ratio (MER)

Answer 9

Is sector or asset class suited to risk tolerance?

Answer 10

``` Returns to investors in the past? Any significant personnel changes? Media coverage? Comparison with industry average? Comparison with direct investment in asset class? ```

Answer 11

Entry/ contribution fees (0- 5%) and exit/ withdrawal fees (0 - 4%) Ongoing management fees [0.15% (p.a.) to 2.11% (p.a.) depending on the fund Switching fees (entry fee option/Nil entry option- higher exit and ongoing fee) Adviser Service fees such as trailing fees (fees the adviser will receive as remuneration), usually between 0.10% and 0.45%

Answer 12

Registered with ASIC? Types of securities allowed to invest in? Valuation of securities? Prospectus clear on risk associated with each asset?

Answer 13

MIS must report regularly to ASIC and scheme members

Answer 14

Open-ended vs. closed-ended | Exit fees

Answer 15

Rate higher than inflation

Answer 16

Ratio of fees charged to the value of the assets under management Usually between 0.5% and 3%

Answer 17

Direct investment into fund via prospectus or product disclosure statement Via ASX for listed trusts or schemes

Answer 18

The Responsibly Entity (RE) will buy and sell units daily | Price based on current net market value of assets of fund

Answer 19

Price determined by supply and demand for units in fund | Value of assets of fund (Net Asset Value)

Answer 20

Investors buy units in the trust or MIS. Units are segments of ownership of the fund. A unit price is known as Net Asset Value where NAV = (Fund assets – Fund liabilities) divided by Number of units issued

Answer 21

Steps in asset allocation: 1. Funds are collected and pooled. 2. MIS allocates funds to asset classes Growth of funds under management varies according to: the inflow of funds, and the value of the assets invested Fund managers set up funds to match profile of investor they are targeting.

Answer 22

Differentiating between the way the funds are managed can help investors match their personal risk profile to that of the fund. Two main investment styles: Active Management: portfolio construction based on qualitative and quantitative research and aims to outperform benchmark of market indices Passive Management: strategy is to replicate the chosen index or create an index-like performance using options and futures

Answer 23

Portfolio is based on qualitative and/or quantitative research (fundamental and technical analysis) Aims to outperform the benchmark index Stock selection and market timing of buy/sell decisions most important Success dependent on market and stock selection and timing

Answer 24

Portfolio is based on chosen index Asset Allocation based on Benchmark Portfolio Strategy is to copy the index or create index like performance using options and futures Popular with pension fund trustees Effective control of fund risk, using the indexed funds

Answer 25

Simplify administration of managed funds by investing while also providing a vehicle for diversification across fund managers. An investment vehicle that enables individual investors or superannuation funds to channel money into one or more underlying investments—most commonly wholesale pooled funds operated by professional investment managers. Master trusts usually allow access to a selection of fund managers and investment markets while consolidating investments into the one fund.

Answer 26

Master trusts: Investments are held by a trustee in its name, on behalf of the investor. All fees and some taxes are bundled into the unit price for each investment and allocated to the investor Wrap accounts: They are operated by a trustee but the investor holds the underlying assets in their own name.Can include existing investments held in MIS, Provide administration of those investments.Results in a more personalised asset allocation.

Answer 27

Complex area for the potential investor. Capital gains concerns. ATO position Investors should pay the same tax rate on managed fund investments as they would on direct investments. Superannuation funds have different tax regimes.

Answer 28

r = (sale price or current market value - purchase price) divided by purchase price result multiplied by 100

Answer 29

slides 51 - 2

Answer 30

Time: A substantial amount of time is required to monitor the performance of a diversified portfolio Large financial resources required: Sufficient diversification cannot be achieved without at least $100,000 in 12 - 15 stocks Expertise: Understanding market condition, picking shares and evaluating performance Access to vital information: This refers to market information such as economic data, statistics, comments by leading economic research houses Business connections: Some important information can only be obtained through strong business ties, especially in overseas markets

Answer 31

Pooling funds to gain access to wider options Professional management by qualified and experienced personnel Access to specialised sectors Access to capital-intensive investments Simplification of the administrative processes Enhanced ability to diversify Administration by others Regulatory oversight and monitoring by ASIC and APRA Ease of redemption Fees known up-front Assessment of funds by rating companies Direct payment of dividends or income

Answer 32

``` Decisions made by someone else Fees Level of risk taken by fund manager Personnel changes may affect returns Capital gains tax ```

Answer 33

``` The managed fund industry has been the subject of a number of legislative changes, brought about by the government’s need to encourage people to save for their own retirements and to ensure funds are available when needed. Demographic ageing (and decline of extended family) brings retirement income security to the fore Pay-as-you-go systems’ vulnerability during ageing ```