Week 8 Flashcards
(38 cards)
What is a collective investment also know as?
Pooling
In basic how does a collective investment work?
Everyones money goes into a pot of money, a manager invest it, you own a share of the pot/ fund.
What are 3 advantages and disadvantages of pooling in a fund?
Advantages
Professional management
specialised areas to invest
Large volume of money can be invested and held protect you
Disadvantages
Management costs even if poor performance
You dont get full ordinary shareholder voting rights
You dont get to pick how the money is invested
What is the IMA?
Investment management association
Does IMA have legal power?
They do not have legal power, they can give advice
What are 4 categories of IMA?
Funds targeting income (dividends and bonds)
Funds targeting growth (Stocks and shares)
Specialised funds (healthcare and tech)
Unclassified funds (any not in those or mixed)
Are funds able to invest however they like?
NO! They must follow rules
What is the legal document called that sets rules to how fund must be run?
Trust deed
Do funds have investment limits?
Yes, no more than 10% in one company
What is a UCIT and Non-UCIT?
UCIT are funds which follow strict regulations across Europe such as no more than 10% invested per company, Non-UCIT is not regulated, it is high risk high reward, you could almost compare them like stocks and Gilts.
Funds must be diversified and cannot invest in dodgy stocks, true or false?
You kidding me bro?
Trustee vs manager (3 points in each)
Trustee
Audits accounts (checks them), makes sure investments are proper (protecting investors), hold and control money and pay out dividends
Managers
Run day-to-day, pick what to invest in and report to trustee
How is a fund started in basic with managers?
Managers must register the fund with the FCA and constantly report to them.
How does tax work in funds, you get a dividend, how is that taxed and how does that work with CGT?
You pay income tax on dividends. If units sell and make profit, you pay CGT
How does income distribution work with funds in basic?
Dividends/ interest passes from the fund to the investor, tax is paid, unless sheltered in an ISA
How can investors shelter from tax on dividend/ interest income theyre making?
By using an ISA
CGT on dividend/ interest, you make 3.5k, do you pay CGT?
Yes because your profit is over 3k
How do funds get tax free and no CGT?
By using the money and investing from an ISA
What does OEIC stand for?
Open ended invested company
What is an OEIC?
A company that invests money into shares etc, you can buy shares, its like Berkshire if they didnt own companies they’d be an OEIC
What are differences between an OEIC and unit trust?
OIEC is setup like company with shareholders, unit trust has investors (unit issued). Legally OEIC is FCA regulated, unit trust is trust law. OEIC issues shares, trust unit issues units.
Whats a unit trust?
Basically a pooled fund but they issue units (like your CTF).
Is a OEIC or Unit trust a collective investment?
Both are collective investments, just structure differently. Ones company structured with shares, ones unit issued.
OEICs can borrow unlimited as part of their structure?
False
