CME-1 Investment Funds 2 — Questions and Answers
Question 1: What is the maximum management fee that a public fund can charge without CMA pre-approval?
- 0.5% annually
- 1% annually
- 2% annually
- There is no cap; it must be disclosed in the Terms and Conditions (Correct answer)
Correct answer: There is no cap; it must be disclosed in the Terms and Conditions
CMA regulations do not impose a specific cap on management fees for public funds. However, all fees must be clearly disclosed in the fund's Terms and Conditions document and approved by the fund board.
Question 2: How frequently must a public investment fund publish its Net Asset Value (NAV)?
- Weekly
- At least daily for open-end funds (Correct answer)
- Monthly
- Quarterly
Correct answer: At least daily for open-end funds
Public open-end funds must calculate and publish their NAV at least on each dealing day. For most public funds, this means daily NAV publication to ensure investors can make informed subscription and redemption decisions.
Question 3: What happens when a fund manager wants to make material changes to a public fund's Terms and Conditions?
- They can make changes immediately
- They must notify unitholders and obtain CMA approval before implementation (Correct answer)
- Only the fund board needs to approve
- Changes are prohibited once a fund is launched
Correct answer: They must notify unitholders and obtain CMA approval before implementation
Material changes to a public fund's Terms and Conditions require prior CMA approval and adequate notice to unitholders. Investors must be given sufficient time to redeem their units if they disagree with the changes.
Question 4: What is the role of the fund's independent director or board member?
- Managing day-to-day fund operations
- Protecting unitholder interests and ensuring proper governance (Correct answer)
- Selecting individual securities for the portfolio
- Marketing the fund to potential investors
Correct answer: Protecting unitholder interests and ensuring proper governance
Independent directors on a fund's board serve as guardians of unitholder interests, providing independent oversight of the fund manager's actions, reviewing conflicts of interest, and ensuring compliance with regulations.
Question 5: What is Sharia compliance in the context of Saudi investment funds?
- Investing only in Saudi-listed companies
- Ensuring investments adhere to Islamic law principles, including avoiding riba and haram activities (Correct answer)
- A government mandate for all funds
- A marketing label with no regulatory significance
Correct answer: Ensuring investments adhere to Islamic law principles, including avoiding riba and haram activities
Sharia-compliant funds follow Islamic law principles by avoiding interest (riba), excessive uncertainty (gharar), and investments in prohibited activities (haram) such as alcohol, gambling, or conventional banking.
Question 6: Under CMA regulations, when must a fund manager report a material event to the CMA?
- Within 30 days
- Within 5 business days
- Immediately upon occurrence (Correct answer)
- At the next quarterly report
Correct answer: Immediately upon occurrence
Fund managers must notify the CMA immediately upon the occurrence of any material event that may affect the value of fund units or the ability of unitholders to exercise their rights.
CME-1 Investment Funds 2
What is the maximum management fee that a public fund can charge without CMA pre-approval?