CMFAS Collective Investment Schemes M3 2 — Questions and Answers
Question 1: What is a fund's prospectus?
- A marketing brochure
- A legal document detailing the fund's objectives, risks, fees, and terms (Correct answer)
- A monthly performance report
- A receipt for investment
Correct answer: A legal document detailing the fund's objectives, risks, fees, and terms
A prospectus is a legal document that provides comprehensive information about the fund, including investment objectives, strategies, risks, fees, and terms.
Question 2: What is the sales charge (front-end load) for a unit trust?
- A fee charged when you sell units
- A fee charged when you buy units, deducted from the investment amount (Correct answer)
- A monthly service fee
- A performance-based fee
Correct answer: A fee charged when you buy units, deducted from the investment amount
A front-end load or sales charge is a commission deducted upfront from the investment amount when purchasing units.
Question 3: What is a money market fund?
- A fund that invests in stocks
- A fund that invests in short-term, low-risk instruments like treasury bills (Correct answer)
- A fund that invests in real estate
- A fund that invests in commodities
Correct answer: A fund that invests in short-term, low-risk instruments like treasury bills
A money market fund invests in short-term, highly liquid, low-risk instruments such as treasury bills, certificates of deposit, and commercial paper.
Question 4: What is an equity fund?
- A fund that invests in bonds
- A fund that primarily invests in stocks/shares (Correct answer)
- A fund that invests in property
- A fund that invests in currencies
Correct answer: A fund that primarily invests in stocks/shares
An equity fund primarily invests in stocks (equities) of companies, aiming for capital growth over the long term.
Question 5: What is a balanced fund?
- A fund that only invests in bonds
- A fund that invests in a mix of equities and fixed income (Correct answer)
- A fund that only invests in one country
- A fund with zero risk
Correct answer: A fund that invests in a mix of equities and fixed income
A balanced fund invests in a combination of equities and fixed-income securities, aiming to provide both growth and income while managing risk.
Question 6: What is the bid price and offer price in unit trusts?
- They are the same price
- Bid is the price at which you sell units; offer is the price at which you buy units (Correct answer)
- Bid is the highest price; offer is the lowest price of the day
- They are only relevant for bonds
Correct answer: Bid is the price at which you sell units; offer is the price at which you buy units
The bid price is what you receive when selling units back to the fund. The offer price is what you pay when buying units. The difference is the spread.
CMFAS Collective Investment Schemes M3 2
What is a fund's prospectus?