CISI IoI Collective Investment Schemes

Question 1

What is a 'collective investment scheme' (CIS)?

Accepted Answer

A pooled investment vehicle where many investors' money is combined and managed collectively to invest in a diversified portfolio

Answer

A savings account shared between multiple family members

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A government scheme for pooling pension contributions

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A scheme where investors collectively negotiate lower trading commissions

Question 2

What is the difference between an OEIC and a unit trust?

Accepted Answer

Both are open-ended funds but OEICs are structured as companies and have a single price; unit trusts are structured as trusts and have a bid-offer price spread

Answer

OEICs invest in equities; unit trusts invest in bonds only

Answer

OEICs are regulated by the PRA; unit trusts are unregulated

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Unit trusts can be listed on a stock exchange; OEICs cannot

Question 3

What does 'open-ended' mean in the context of a fund?

Accepted Answer

The fund can create new units/shares and redeem existing ones in response to investor demand, meaning the size of the fund expands and contracts

Answer

The fund has no defined investment objective

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The fund has no maturity date for its bonds

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The fund manager has discretion to invest in any asset class

Question 4

What is a 'closed-ended' fund and how does it differ from an open-ended fund?

Accepted Answer

A closed-ended fund has a fixed number of shares listed on a stock exchange; investors buy and sell shares in the secondary market rather than subscribing to or redeeming from the fund manager

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A closed-ended fund has stopped accepting new investors but otherwise operates identically to an open-ended fund

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A closed-ended fund invests exclusively in fixed-income securities

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A closed-ended fund charges a flat fee rather than a percentage-based annual management charge

Question 5

What is the 'annual management charge' (AMC) in a fund?

Accepted Answer

The annual fee charged by the fund manager for managing the portfolio, expressed as a percentage of the fund's assets

Answer

A one-off charge paid when first investing in a fund

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A charge paid when switching between funds within the same fund group

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A charge applied if the fund performs below its benchmark

Question 6

What is an 'Exchange Traded Fund' (ETF)?

Accepted Answer

A fund that tracks an index (or other benchmark) and is listed and traded on a stock exchange like ordinary shares

Answer

An actively managed fund sold exclusively through financial advisers

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A fund that only invests in foreign currency instruments

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A closed-ended property fund