CCM Unit Trust flashcards

31 cards. Read the term and the definition here. The deck at the top of this page is optional.

Unit trust definition

A pooled collective investment scheme where investors buy units; a management company invests the pooled money and a separate trustee safekeeps assets under a trust deed.

Trust deed

The legal contract governing a unit trust. It sets the investment objective, permitted investments, fee structure, valuation rules and termination conditions binding manager, trustee and unitholders.

Role of trustee

The trustee or custodian holds fund assets separately from the manager, monitors compliance with the deed and regulations, and protects unitholders if the manager fails.

Net asset value formula

NAV per unit equals total fund assets minus total liabilities, divided by the number of units in issue, calculated at each scheduled valuation point.

Permitted investment rules

Regulatory limits on what a fund may hold and how much it may concentrate in one issuer, scheme or counterparty, designed to control risk and ensure diversification.

Ongoing disclosure duties

Managers must publish a prospectus, annual audited accounts and periodic reports, and notify investors and the regulator of material changes to the fund or its fees.

Redemption right

An investor's entitlement to sell units back to the manager at NAV, subject to dealing cut-off times, notice periods and any permitted dilution levy stated in the deed.

Open-ended fund

A fund that continuously creates and cancels units at net asset value in response to investor subscriptions and redemptions, so the unit count changes daily.

Forward pricing

The rule that subscription and redemption orders are priced at the next NAV calculated after the dealing cut-off, not at a previously published price.

Dilution levy

A charge applied to large inflows or outflows to cover the trading costs they cause, protecting existing investors from bearing those costs through a reduced NAV.

Accumulating versus distributing

Accumulating units reinvest income, raising NAV per unit; distributing units pay income to investors, reducing NAV per unit by the amount distributed.

Total expense ratio

Annual fund operating costs expressed as a percentage of average net assets, covering management and administration fees but excluding sales charges and one-off trading costs.

Suspension of dealing

A temporary halt to subscriptions and redemptions permitted only on defined grounds such as inability to value assets, which must be disclosed and reported to the regulator.

Fund reconciliation

The periodic process of matching units in issue, cash balances and custody holdings to the fund's accounting records at each valuation point to detect errors.

Money market fund

A fund investing in short-term, high-quality debt instruments aiming for a stable NAV and high liquidity, carrying low duration and credit risk.

Dealing cut-off time

The daily deadline after which an order is treated as received on the next dealing day and priced at the following valuation point.

Prospectus requirement

A public offer of units requires an approved or registered prospectus containing the fund's objective, risks, fees and terms; marketing must not contradict it.

Fair clear not misleading

The conduct standard for marketing: communications must be balanced, present risks alongside returns, and avoid exaggeration or omission likely to mislead investors.

Past performance warning

A mandatory statement that historical returns are not a reliable guide to future results, shown prominently wherever performance figures appear.

Performance disclosure basis

Performance figures must state the period, currency, price basis and whether income was reinvested; annualized figures require at least a one-year track record.

Fee disclosure before sale

Entry, exit and ongoing charges plus any commission sharing must be disclosed before investment so the client understands total cost and conflicts of interest.

Suitability assessment

The distributor's evaluation of a client's objectives, risk tolerance, time horizon and knowledge before recommending a fund, documented for regulatory review.

Cooling-off period

A mandated window after purchase during which an investor may cancel and receive a refund on stated terms, giving protection against pressured sales.

Simulated returns labelling

Hypothetical or back-tested performance must be clearly identified as simulated and accompanied by the assumptions used, never presented as actual results.

Cold-calling restrictions

Rules limiting unsolicited marketing calls, typically requiring consent, respecting calling hours and keeping records of calls and any resulting orders.

Fiduciary duty

The obligation to act in the client's best interest, putting client interests ahead of the firm's and managing or disclosing any conflicts of interest.

Know your client

Collecting and documenting sufficient information about a client's financial position, objectives, risk tolerance and experience to give suitable advice.

Client confidentiality

The duty to use client data only for the purpose collected, share it only with consent or legal authority, and protect it from unauthorized access.

Personal account dealing

Staff trading in funds they manage or advise on is restricted by pre-clearance requirements and blackout periods to prevent front-running and market abuse.

Gifts and entertainment limits

Rules capping the value of benefits received or given, requiring disclosure and refusal of amounts that could compromise independent advice.

Complaint handling procedure

A documented process for logging, investigating and resolving client complaints within set timelines, with escalation to an external ombudsman if unresolved.