Collective Investment Schemes and Funds
This domain tests how pooled funds are structured, priced and sold, and where the investor's money actually sits.
Core rules
An open-end fund issues and redeems units at net asset value, usually calculated once daily as the fund's assets less liabilities divided by units outstanding. A closed-end fund trades on an exchange and can trade at a premium or discount to NAV. ETFs combine exchange trading with creation and redemption by authorized participants, which keeps the market price close to NAV. Charges typically include a subscription fee, an annual management fee and sometimes a performance fee; these reduce the investor's return and must be disclosed. Authorization or registration is not a guarantee of performance or suitability.
Worked example
A fund holds assets of 105 million and liabilities of 5 million, with 10 million units outstanding. NAV per unit = (105 - 5) / 10 = 10.00. An investor subscribing at a 2% front-end load pays 10.20 per unit; redeeming later at an NAV of 11.00 with a 1% redemption fee receives 10.89. The investor's return trails the fund's NAV growth because of the fees.
Traps that cost marks
Confusing the offer price with NAV; assuming a discount to NAV is automatically cheap; ignoring dilution from large inflows; treating a past performance figure as net of all charges when it is gross.