CISI IoI Investment Funds

Question 1

What is the key structural difference between a unit trust and an Open-Ended Investment Company (OEIC)?

Accepted Answer

A unit trust is structured as a trust with a trustee, while an OEIC is structured as a company with a depositary

Answer

A unit trust can only invest in bonds while an OEIC invests in equities

Answer

OEICs are not regulated by the FCA while unit trusts are

Answer

Unit trusts are closed-ended while OEICs are closed-ended

Question 2

What does 'open-ended' mean in relation to an investment fund?

Accepted Answer

The fund can create and cancel units or shares in response to investor demand

Answer

The fund has no fixed maturity date

Answer

The fund is open to investors of all nationalities

Answer

The fund can invest in any asset class without restriction

Question 3

An investment trust is trading at a share price of GBP 2.50 while its net asset value (NAV) per share is GBP 3.00. The investment trust is said to be trading at a:

Accepted Answer

Discount of approximately 16.7%

Answer

Premium of 20%

Answer

Par value

Answer

Premium of 16.7%

Question 4

What is the difference between 'income' and 'accumulation' units in a unit trust?

Accepted Answer

Income units distribute dividends to investors while accumulation units reinvest income back into the fund

Answer

Income units invest only in bonds while accumulation units invest in equities

Answer

Accumulation units have higher charges than income units

Answer

There is no difference; the terms are interchangeable

Question 5

Which of the following best describes an Exchange-Traded Fund (ETF)?

Accepted Answer

An open-ended fund that tracks an index and is traded on a stock exchange like ordinary shares

Answer

A closed-ended fund that only invests in commodities

Answer

A fund that can only be bought at the end of each trading day at NAV

Answer

A private fund available only to institutional investors

Question 6

What is the Ongoing Charges Figure (OCF) in relation to investment funds?

Accepted Answer

The annual running costs of the fund expressed as a percentage of the fund's assets

Answer

The one-off charge paid when buying into a fund

Answer

The performance fee paid to the fund manager for beating a benchmark

Answer

The exit charge applied when selling units in the fund