Collective Investment Schemes M3 Flashcards

What is a collective investment scheme (CIS)?

Answer: A scheme where funds from multiple investors are pooled and professionally managed

A CIS pools money from many investors and invests it collectively according to a stated investment objective, managed by professional fund managers.

Who manages the investments in a unit trust?

Answer: A professional fund manager

A professional fund manager is appointed to manage the investments of a unit trust, making buy and sell decisions on behalf of unitholders.

What is the role of a trustee in a unit trust?

Answer: To safeguard the assets of the fund and protect unitholders' interests

The trustee holds the assets of the unit trust on behalf of unitholders, ensures compliance with the trust deed, and acts as a check on the fund manager.

What is the difference between an open-ended and a closed-ended fund?

Answer: Open-ended funds continuously issue and redeem units; closed-ended funds have a fixed number of units

Open-ended funds create new units when investors buy in and cancel units when investors sell. Closed-ended funds have a fixed number of units traded on the exchange.

What is the management fee in a unit trust?

Answer: An ongoing fee charged by the fund manager for managing the fund

The management fee is an ongoing annual charge (typically 0.5% to 2% of NAV) paid to the fund manager for their investment management services.

What does diversification mean in the context of CIS?

Answer: Spreading investments across different assets to reduce risk

Diversification means spreading investments across different asset classes, sectors, and geographies to reduce the impact of any single investment's poor performance.