CISI IoI Investment Funds 2

Question 1

What is a key advantage of an investment trust over an open-ended fund such as a unit trust?

Accepted Answer

Investment trusts can borrow money (gear) to enhance returns

Answer

Investment trusts are not subject to any FCA regulation

Answer

Investment trusts guarantee a minimum return to shareholders

Answer

Investment trusts have no management fees

Question 2

A fund manager who follows a 'passive' investment strategy will typically:

Accepted Answer

Aim to replicate the performance of a specific market index at low cost

Answer

Select individual stocks based on fundamental analysis to outperform the market

Answer

Concentrate the portfolio in a small number of high-conviction holdings

Answer

Actively trade the portfolio daily to exploit short-term price movements

Question 3

What is a fund of funds?

Accepted Answer

A fund that invests in other investment funds rather than directly in securities

Answer

A fund that invests directly in shares and bonds from multiple countries

Answer

A fund that only invests in government bonds from different countries

Answer

A fund managed by multiple fund managers simultaneously

Question 4

Under FCA rules, what is the maximum initial charge that can be applied to a UCITS-qualifying fund?

Accepted Answer

There is no regulatory maximum — charges are set by the fund manager and disclosed to investors

Answer

5% of the investment amount

Answer

1% of the investment amount

Answer

No initial charges are permitted under UCITS rules

Question 5

What does UCITS stand for, and what is its significance for UK investors?

Accepted Answer

Undertakings for Collective Investment in Transferable Securities — an EU-originated framework providing a standard for regulated funds

Answer

Unified Collective Investment Trust Scheme — a UK-only regulatory framework

Answer

United Kingdom Centralised Investment Trading System — the system for settling fund trades

Answer

Universal Credit and Investment Tax Scheme — a government savings initiative

Question 6

Which of the following risks is specific to closed-ended investment funds such as investment trusts?

Accepted Answer

Discount risk — the fund may trade at a discount to its NAV

Answer

Market risk

Answer

Interest rate risk

Answer

Inflation risk