Collective Investment Schemes M3 Flashcards

What is dollar-cost averaging?

Answer: Investing a fixed amount at regular intervals regardless of price

Dollar-cost averaging involves investing a fixed amount regularly, which buys more units when prices are low and fewer when prices are high, averaging the cost.

What is a feeder fund?

Answer: A fund that invests substantially all its assets into another fund

A feeder fund channels virtually all its capital into a single master fund, which does the actual investing. This structure allows access to foreign funds.

What is the expense ratio of a fund?

Answer: The total annual fund operating expenses expressed as a percentage of average net assets

The expense ratio includes all operating costs (management fee, trustee fee, audit fees, etc.) expressed as a percentage of the fund's average net assets.

What is a fund-of-funds?

Answer: A fund that invests in other funds rather than directly in securities

A fund-of-funds invests in a portfolio of other investment funds rather than investing directly in stocks, bonds, or other securities.

What is redemption in the context of unit trusts?

Answer: Selling units back to the fund manager in exchange for cash

Redemption is the process of selling your units back to the fund manager, who will pay you the redemption price (bid price) based on the current NAV.

What does the Sharpe ratio measure?

Answer: The risk-adjusted return of an investment

The Sharpe ratio measures how much excess return an investment generates per unit of risk taken. A higher Sharpe ratio indicates better risk-adjusted performance.