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TOAP UITF Certification Program Qualifying Exam study materials
TOAP UITF Certification Program Qualifying Exam study resources

TOAP UITF Certification Program Qualifying Exam practice questions

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Question 1Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Under the Philippine regulatory framework for Unit Investment Trust Funds, which document must a UITF trustee make available to prospective investors before they invest and must be updated at least annually?

  1. The fund's audited financial statements for the prior fiscal year
  2. The Marketing brochure approved by the trust committee
  3. The trustee bank's articles of incorporation
  4. The Key Information and Investment Disclosure Statement (KIIDS) Correct answer.

Explanation

The KIIDS is the prescribed investor-facing disclosure document that summarizes a UITF's investment objective, risks, fees, and performance, and it must be updated at least annually. Audited financial statements and marketing materials serve different purposes and are not the mandated pre-investment disclosure.

Question 2Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF is best described as which type of arrangement?

  1. A mutual fund organized as a separate stock corporation
  2. An insurance contract with a minimum guaranteed death benefit
  3. A pool of assets held in trust by a trustee bank for the benefit of participating investors Correct answer.
  4. A deposit product where the bank guarantees principal and interest

Explanation

A UITF is a collective investment scheme where a trustee bank holds and manages pooled assets in trust for participants, who own units representing their proportionate interest. It is not a deposit, not a separate stock corporation, and not an insurance product.

Question 3Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which party is primarily responsible for the safekeeping and administration of the UITF's assets in accordance with the trust agreement?

  1. The fund's external auditor
  2. The trustee bank Correct answer.
  3. The securities exchange where units are listed
  4. The individual participants

Explanation

The trustee bank holds legal title to the fund's assets and administers them in trust for the participants under the trust agreement. Auditors provide independent assurance, exchanges provide trading venues, and participants have no custodial role.

Question 4Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF participant wishes to redeem units. Which price basis is used to determine the redemption value?

  1. The par value of the units as stated in the trust agreement
  2. The unit price on the day the redemption request was submitted, regardless of dealing cut-off
  3. The next computed net asset value per unit (NAVPU) after the redemption request is received and processed Correct answer.
  4. The highest NAVPU achieved by the fund during the prior calendar year

Explanation

Redemptions are generally transacted at the next computed NAVPU after the request is received and processed in accordance with the fund's dealing cut-off rules. This forward pricing prevents investors from trading on stale or known prices.

Question 5Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF reports total assets of PHP 500 million, total liabilities of PHP 20 million, and 40 million units outstanding. What is the net asset value per unit (NAVPU)?

  1. PHP 10.50
  2. PHP 12.00 Correct answer.
  3. PHP 13.00
  4. PHP 12.50

Explanation

NAVPU equals net asset value divided by units outstanding. Net asset value is PHP 500 million minus PHP 20 million, or PHP 480 million; dividing by 40 million units gives PHP 12.00 per unit.

Question 6Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which risk is most directly associated with a UITF that invests primarily in long-term fixed-income securities?

  1. Currency risk
  2. Concentration risk in a single equity issuer
  3. Liquidity risk arising from illiquid real estate holdings
  4. Interest rate risk Correct answer.

Explanation

Bond prices move inversely with interest rates, so a fixed-income UITF is primarily exposed to interest rate risk. Currency risk depends on foreign-denominated holdings, equity concentration applies to stock funds, and real estate illiquidity applies to property funds.

Question 7Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which statement about the guarantee status of UITFs is accurate?

  1. Returns are not guaranteed, and investors bear the investment risk Correct answer.
  2. Returns are guaranteed by the trustee bank up to the amount covered by deposit insurance
  3. Returns are guaranteed by the Bangko Sentral ng Pilipinas
  4. Returns are guaranteed if the fund has existed for more than five years

Explanation

UITFs are not deposit products and carry no guarantee of principal or return; the investor bears the market risk. Deposit insurance covers deposits, not UITF units, and no regulator guarantees fund performance.

Question 8Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

The trust committee of a trustee bank is expected to perform which function in UITF governance?

  1. Approve the fund's investment policies and oversee compliance with the trust agreement Correct answer.
  2. Audit the trustee bank's financial statements
  3. Execute daily trade orders for the fund's equity portfolio
  4. Compute the daily NAVPU independently of the fund accountant

Explanation

The trust committee provides oversight of the trust business, approving investment policies and monitoring adherence to the trust agreement and regulations. Execution of trades, NAVPU computation, and external audit are performed by other parties.

Question 9Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

An investor places a subscription to a UITF on a day when the NAVPU is PHP 100.00, but the request is received after the dealing cut-off and is processed the next dealing day at NAVPU of PHP 102.00. How many units will the investor receive for a PHP 1,020,000 subscription, ignoring fees?

  1. 10,200 units
  2. 10,000 units Correct answer.
  3. 9,800 units
  4. 10,404 units

Explanation

Because the request was processed at the next dealing day's NAVPU of PHP 102.00, the units received equal PHP 1,020,000 divided by PHP 102.00, which is 10,000 units. The earlier NAVPU is irrelevant once the cut-off is missed.

Question 10Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which fee is typically charged by a UITF to cover the costs of managing the fund's portfolio and is accrued daily against the fund's net assets?

  1. The management fee Correct answer.
  2. The early redemption fee
  3. The sales load
  4. The custodian's transaction tax

Explanation

The management fee compensates the fund manager and is accrued daily against the fund's net assets, reducing NAVPU over time. Sales loads are charged at subscription, redemption fees at exit, and taxes are statutory charges rather than management compensation.

Question 11Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF's prospectus states that it may use derivative instruments for hedging. Which risk is the fund primarily seeking to reduce through such hedging?

  1. Operational risk from internal process failures
  2. Counterparty credit risk
  3. Market risk from adverse price movements in its portfolio Correct answer.
  4. Regulatory risk from changes in securities laws

Explanation

Hedging with derivatives is used to offset potential losses from adverse movements in market prices, interest rates, or exchange rates. Hedging itself can introduce counterparty risk rather than eliminate it, and it does not address operational or regulatory risk.

Question 12Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which of the following best characterizes a money market UITF?

  1. It invests in short-term, high-quality debt instruments with low price volatility Correct answer.
  2. It invests in a diversified portfolio of listed equity securities
  3. It invests in long-dated government bonds to maximize capital appreciation
  4. It invests primarily in real estate and infrastructure projects

Explanation

Money market UITFs hold short-term, high-quality debt instruments, which keeps price volatility low and supports liquidity. Equity, property, and long-dated bond strategies describe other fund classifications.

Question 13Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A trustee bank discovers that a UITF's actual investment in a single issuer exceeds the regulatory single-issuer limit due to market appreciation. What is the most appropriate course of action?

  1. Reclassify the fund as a feeder fund to avoid the limit
  2. Continue holding the position because the breach resulted from price movement rather than a purchase
  3. Immediately sell the excess and report the breach to the regulator within the prescribed period Correct answer.
  4. Suspend NAVPU computation until the position returns to the limit

Explanation

Investment limits must be observed, and a breach, even one caused by market movement, requires prompt correction and notification to the regulator within the prescribed period. Passive tolerance, reclassification, and suspension of NAVPU computation are not acceptable remedies.

Question 14Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which party typically provides independent verification of a UITF's net asset value computation?

  1. The trustee's marketing department
  2. The fund manager
  3. An independent custodian or third-party auditor as required by regulation Correct answer.
  4. The participants' representative committee

Explanation

Regulations generally require independent verification of NAVPU, performed by a party such as an independent custodian or auditor separate from the fund manager. The manager computes or oversees the calculation, so it cannot independently verify its own work.

Question 15Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

An investor is comparing two UITFs with identical gross returns, but Fund A charges a higher management fee than Fund B. What is the most likely effect on the investor's net return?

  1. Fund A will produce a higher net return because higher fees signal better management
  2. Fund A will produce a lower net return, all else equal, because fees reduce the fund's net assets Correct answer.
  3. The effect depends solely on the fund's unit price at the time of subscription
  4. The fees will have no effect because management fees are paid by the trustee bank from its own capital

Explanation

Management fees are charged against fund assets, so a higher fee reduces net asset value and therefore the investor's net return when gross returns are equal. Fees are not a quality signal and are not paid from the trustee's own capital.

Question 16Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which document governs the legal relationship between the trustee bank and the UITF participants, setting out the fund's investment objective, policies, and operational rules?

  1. The trust agreement or plan rules Correct answer.
  2. The investor's subscription confirmation slip
  3. The fund's tax identification certificate
  4. The trustee bank's annual report

Explanation

The trust agreement, together with the plan rules, establishes the fund's structure, objective, policies, and the rights and obligations of the trustee and participants. The other documents serve reporting, identification, or transaction-confirmation purposes.

Question 17Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF's NAVPU rises from PHP 150.00 to PHP 157.50 over one quarter. What is the percentage return for that quarter?

  1. 5.00 percent Correct answer.
  2. 7.50 percent
  3. 4.76 percent
  4. 15.00 percent

Explanation

The percentage return equals the change in NAVPU divided by the starting NAVPU, or PHP 7.50 divided by PHP 150.00, which is 5.00 percent. Using the ending value as the denominator would give a different and incorrect figure.

Question 18Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which practice would be considered inappropriate in the marketing of UITF units?

  1. Disclosing the fund's fees and charges in the KIIDS
  2. Comparing the fund's returns with a relevant benchmark over the same period
  3. Describing the fund as a guaranteed high-yield investment with no risk of loss Correct answer.
  4. Presenting historical performance with a clear statement that past performance is not a guarantee of future results

Explanation

UITF marketing must not misrepresent the product as guaranteed or risk-free, because returns are not assured and investors bear investment risk. Balanced presentation of performance with appropriate caveats and full fee disclosure are acceptable practices.

Question 19Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

What is the effect of a sales load charged at subscription on the number of units an investor receives?

  1. It has no effect on units because it is deducted only at redemption
  2. It reduces the amount invested and therefore the number of units received Correct answer.
  3. It changes the NAVPU applied to the subscription
  4. It increases the number of units received because the load is reinvested

Explanation

A subscription sales load is deducted from the amount tendered, so a smaller amount is divided by the NAVPU and fewer units are issued. The load affects the amount invested, not the NAVPU itself, and is distinct from redemption charges.

Question 20Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF classified as a feeder fund is characterized by which feature?

  1. It guarantees a minimum return through a swap arrangement
  2. It holds assets exclusively in physical currency
  3. It invests at least a substantial portion of its assets in a single target fund Correct answer.
  4. It invests only in Philippine government securities

Explanation

A feeder fund channels most of its assets into a single target or master fund, gaining exposure to that fund's portfolio and risks. It is not limited to government securities, does not guarantee returns, and does not hold assets solely as currency.

Question 21Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which of the following is a key distinction between a UITF and a bank time deposit?

  1. A UITF always pays a higher fixed rate than a time deposit
  2. A UITF's value fluctuates with market conditions while a time deposit pays a contractual rate Correct answer.
  3. A time deposit is managed by a trust committee while a UITF is not
  4. A UITF is covered by deposit insurance while a time deposit is not

Explanation

UITF units are marked to market, so their value rises and falls with the underlying portfolio, whereas a time deposit pays a contractually agreed rate. UITFs are not deposit-insured, and time deposits are not governed by a trust committee.

Question 22Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

An investor wants daily liquidity and minimal price fluctuation for short-term funds. Which UITF classification is most suitable?

  1. An equity index fund
  2. A property fund
  3. A money market fund Correct answer.
  4. A long-term bond fund

Explanation

Money market funds invest in short-term, high-quality instruments, offering relatively stable prices and daily liquidity. Long-term bond, equity, and property funds carry greater price volatility or longer settlement horizons.

Question 23Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A trustee bank delegates the discretionary management of a UITF's portfolio to an external investment manager. Which statement best reflects the trustee's responsibility?

  1. The external manager becomes the legal trustee of the fund
  2. The trustee retains oversight responsibility and remains accountable for the fund's administration Correct answer.
  3. The delegation eliminates the need for independent NAVPU verification
  4. The trustee is relieved of all responsibility once management is delegated

Explanation

Delegation of portfolio management does not transfer the trustee's fiduciary duty; the trustee remains responsible for oversight and administration of the fund. The external manager does not become the legal trustee, and independent verification is still required.

Question 24Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which disclosure should a UITF provide to help investors understand the fund's risk profile before investing?

  1. The salaries of the trust committee members
  2. The personal income tax returns of the fund manager
  3. The list of the trustee bank's shareholders
  4. A statement of the fund's risk classification and the risks associated with its investment strategy Correct answer.

Explanation

Prospective investors must be informed of the fund's risk classification and the specific risks arising from its strategy so they can assess suitability. Personal tax returns, shareholder lists, and compensation details are unrelated to fund risk disclosure.

Question 25Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF's NAVPU declines sharply because of a broad market sell-off, and several participants redeem at once. Which risk does this scenario most directly illustrate?

  1. Liquidity risk combined with market risk Correct answer.
  2. Sovereign risk
  3. Underwriting risk
  4. Prepayment risk

Explanation

A market-wide decline reflects market risk, and simultaneous redemptions can force asset sales at unfavorable prices, illustrating liquidity risk. Sovereign, underwriting, and prepayment risks describe different exposures not central to this scenario.

Question 26Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Under the regulatory framework for UITFs, which body is primarily responsible for issuing the rules and regulations that govern the establishment and operation of UITFs by trust entities?

  1. The Insurance Commission (IC)
  2. The Philippine Deposit Insurance Corporation (PDIC)
  3. The Securities and Exchange Commission (SEC)
  4. The Bangko Sentral ng Pilipinas (BSP) Correct answer.

Explanation

The BSP, through its Monetary Board, issues the regulations governing trust and other fiduciary business, including UITFs, under the General Banking Law and related circulars. The SEC regulates investment companies and securities offerings, while the PDIC insures deposits and the IC regulates insurance. UITF rules are therefore primarily BSP-issued.

Question 27Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF participant wants to know the price at which units are bought and sold on a given day. Which value is used for this purpose?

  1. The fund's total net assets divided by the number of participants
  2. The par value of the fund's underlying securities
  3. The net asset value per unit (NAVPU) computed for that valuation day Correct answer.
  4. The highest price at which the fund's securities traded during the day

Explanation

UITF units are priced using the NAVPU, which is the fund's net asset value divided by the number of units outstanding, computed at the prescribed valuation time. This ensures all participants transact at a fair value-based price. Par value, participant count, and intraday high prices do not determine the dealing price.

Question 28Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which document must a prospective UITF investor receive and acknowledge before making an initial investment?

  1. The BSP circular on trust business
  2. The trustee bank's annual report
  3. The audited financial statements of the fund's largest holding
  4. The fund's prospectus and a risk disclosure statement Correct answer.

Explanation

Before investing, a participant must be given the UITF prospectus and a risk disclosure statement, and must acknowledge receipt and understanding of the risks. This supports informed decision-making. The other documents are not the prescribed pre-investment disclosures for UITF participants.

Question 29Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF's prospectus states that the fund may invest in securities issued by companies in emerging markets. Which additional risk does this feature primarily introduce compared with a fund investing only in domestic government securities?

  1. Call risk
  2. Country and currency risk Correct answer.
  3. Liquidity risk specific to the fund's own units
  4. Reinvestment risk

Explanation

Emerging-market securities expose the fund to country risk, including political and economic instability, and to currency risk when assets are denominated in foreign currencies. Reinvestment risk and call risk relate to fixed-income cash flows, and liquidity risk of the fund's own units concerns redemption terms rather than the geographic focus.

Question 30Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A trustee bank's UITF has a policy of valuing its portfolio at market prices. On a day when a held bond does not trade, which approach is most consistent with fair valuation principles?

  1. Carry the bond at its original purchase price until a trade occurs
  2. Value the bond at the last traded price indefinitely
  3. Exclude the bond from the NAVPU calculation until it trades
  4. Use a valuation method approved in the fund's policies that reflects observable market inputs or a documented model Correct answer.

Explanation

When market prices are unavailable, the fund should use a fair valuation methodology approved in its policies, based on observable inputs or a documented model, to estimate fair value. Carrying at cost, indefinitely using a stale price, or excluding the asset would misstate the NAVPU. Consistent fair valuation protects participants from cross-subsidization.

Question 31Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

An investor redeems UITF units and receives proceeds that are less than the amount originally invested, even though the fund's NAVPU increased over the holding period. Which factor most likely explains this outcome?

  1. The fund's management fee was charged only at redemption
  2. The investor's units were diluted by new subscriptions
  3. The NAVPU used for redemption was based on the previous day's price
  4. Sales load or redemption fees reduced the net proceeds Correct answer.

Explanation

Sales loads and redemption fees are deducted from the investment or proceeds and can turn a positive NAVPU change into a net loss for the investor. Management fees are typically accrued daily in the NAVPU, not charged only at redemption. Using a prior day's NAVPU or dilution from subscriptions would not systematically cause a loss when NAVPU rose.

Question 32Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which statement best describes the role of the fund manager in a UITF?

  1. The fund manager executes the investment strategy within the parameters set in the fund's prospectus and investment policy Correct answer.
  2. The fund manager guarantees the fund's return to participants
  3. The fund manager sets the NAVPU each day without independent oversight
  4. The fund manager acts as custodian of the fund's securities

Explanation

The fund manager is responsible for implementing the fund's investment strategy in accordance with the prospectus and investment policy, subject to trustee oversight. The fund manager does not guarantee returns, does not unilaterally set the NAVPU without controls, and does not serve as custodian.

Question 33Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF invests in a diversified portfolio of Philippine equities. Which benchmark is most appropriate for evaluating the fund manager's performance?

  1. The Philippine Stock Exchange index (PSEi) Correct answer.
  2. The 91-day Treasury bill rate
  3. The average savings deposit rate of universal banks
  4. The BSP policy rate

Explanation

An equity UITF should be evaluated against an equity benchmark such as the PSEi, which reflects the performance of the domestic equity market in which the fund invests. Treasury bill rates, savings deposit rates, and the policy rate are short-term interest rate benchmarks more suited to money market funds.

Question 34Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which of the following is a permissible investment for a UITF classified as a money market fund?

  1. Long-term corporate bonds with remaining maturities of ten years
  2. Real estate properties
  3. Listed equity securities of large-cap companies
  4. Short-term government securities with remaining maturities of one year or less Correct answer.

Explanation

Money market UITFs invest in short-term, high-quality debt instruments such as Treasury bills and other securities with short maturities to preserve capital and provide liquidity. Equities, long-term bonds, and real estate are inconsistent with the money market classification.

Question 35Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A trustee bank plans to launch a UITF that invests in a foreign collective investment scheme. Which regulatory consideration is most relevant?

  1. Approval from the PDIC for deposit insurance coverage
  2. Exemption from the requirement to produce a prospectus
  3. Registration with the Insurance Commission as an insurance product
  4. Compliance with BSP rules on foreign investments and eligibility of the target fund Correct answer.

Explanation

A UITF investing in a foreign collective investment scheme, such as a feeder fund, must comply with BSP rules on foreign investments and the eligibility criteria for the target fund. PDIC insurance, Insurance Commission registration, and prospectus exemptions are not applicable to UITFs.

Question 36Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

An investor compares two UITFs with the same gross return, but Fund A has a higher management fee than Fund B. All else equal, which fund is expected to have a higher net NAVPU growth over time?

  1. Both funds will have equal net growth
  2. Fund B Correct answer.
  3. The fund with the larger asset base
  4. Fund A

Explanation

Management fees are deducted from the fund's assets and reduce the NAVPU. With the same gross return, the fund with the lower management fee, Fund B, will have higher net growth. Asset size alone does not determine net growth when fees differ.

Question 37Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

Which of the following best describes the treatment of a UITF's assets in the event of the trustee bank's insolvency?

  1. The UITF assets are insured by the PDIC up to the coverage limit
  2. The UITF assets are frozen until the bank is liquidated
  3. The UITF assets are treated as part of the bank's estate and distributed to creditors
  4. The UITF assets are held in trust and segregated from the bank's own assets, so they are not available to the bank's creditors Correct answer.

Explanation

UITF assets are held in trust for the participants and are segregated from the trustee bank's corporate assets, so they are not part of the bank's estate in insolvency. They are not PDIC-insured, and they are not frozen for distribution to the bank's creditors.

Question 38Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF's prospectus permits the use of derivatives for hedging. Which risk is the fund primarily seeking to reduce by using derivatives in this manner?

  1. Operational risk
  2. Regulatory risk
  3. Credit risk of the trustee bank
  4. Market risk Correct answer.

Explanation

Derivatives used for hedging are intended to offset adverse movements in market prices, interest rates, or exchange rates, thereby reducing market risk. They do not primarily address the trustee bank's credit risk, operational risk, or regulatory risk.

Question 39Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A UITF's NAVPU declines sharply because of a broad market sell-off, and several participants redeem at once. Which risk is most directly illustrated by this scenario?

  1. Interest rate risk
  2. Currency risk
  3. Liquidity risk Correct answer.
  4. Credit risk

Explanation

Liquidity risk is the risk that the fund may not be able to meet redemption requests without affecting asset prices, especially during market stress. Interest rate, credit, and currency risks relate to specific market factors rather than the ability to meet redemptions.

Question 40Unit Investment Trust Funds (UITF) Fundamentals and Regulatory Framework

A trustee bank's money market UITF holds a Treasury bill that matures in 45 days. Under the rules governing UITFs, how should the fund treat this security when computing its weighted average maturity and portfolio limits?

  1. Reclassify the fund as a bond fund, because holding any Treasury security disqualifies money market status
  2. Exclude it entirely, since only deposits and cash equivalents may be held by a money market UITF
  3. Count it as a money market instrument because its remaining maturity is within one year, subject to the fund's stated maximum maturity and the applicable regulatory limits Correct answer.
  4. Treat it as a long-term bond because any government security is classified by issuer rather than by maturity

Explanation

Money market UITFs are defined by the short remaining maturity of their holdings, so a Treasury bill maturing within the permitted horizon qualifies as an eligible money market instrument. The trustee must still respect the fund's declared maximum maturity and the diversification and eligibility limits set by the regulations. Classification follows maturity and instrument type, not merely the identity of the issuer.

Question 41UITF Product Structures, Features, and Eligible Investments

Under the UITF framework, which type of fund pools investor money and invests it collectively according to a single stated investment policy?

  1. A universal bank trust department
  2. A pension plan
  3. A unit investment trust fund Correct answer.
  4. A discretionary managed account

Explanation

A unit investment trust fund is a collective investment scheme in which investor money is pooled and invested as one portfolio under a single declared investment policy, with investors receiving units valued by net asset value per unit. The other structures describe separate arrangements rather than a pooled UITF.

Question 42UITF Product Structures, Features, and Eligible Investments

An investor buys units of a UITF. What does each unit represent?

  1. A fixed peso deposit insured by the bank
  2. A proportional share of the fund's net asset value Correct answer.
  3. A guaranteed minimum return
  4. A direct legal title to each underlying security

Explanation

Units represent a proportionate participation in the pooled portfolio, and their price is the net asset value per unit. Investors do not own individual securities directly and are not promised fixed returns.

Question 43UITF Product Structures, Features, and Eligible Investments

How is the net asset value per unit (NAVPU) of a UITF computed?

  1. Total fund assets minus liabilities, divided by total units outstanding Correct answer.
  2. Total income earned divided by units outstanding
  3. Total assets divided by the number of investors
  4. Total contributions received divided by the number of investors

Explanation

NAVPU equals the fund's net assets, meaning total assets less total liabilities, divided by the total number of units outstanding. It is the valuation basis for buying and selling units.

Question 44UITF Product Structures, Features, and Eligible Investments

A UITF is described as an open-end fund. What does this mean for investors?

  1. They may only exit when the fund reaches maturity
  2. They must hold units for a fixed lock-up period
  3. They may redeem units at the prevailing NAVPU on any dealing day Correct answer.
  4. They may sell units only to another investor on an exchange

Explanation

Open-end funds continuously issue and redeem units at the current NAVPU on dealing days, so investors can enter and exit at prevailing valuation. Closed-end funds, by contrast, trade on an exchange or mature at a fixed date.

Question 45UITF Product Structures, Features, and Eligible Investments

Which document primarily defines a UITF's investment objective, eligible investments, and risk disclosures?

  1. The fund's plan or declaration of trust and its prospectus Correct answer.
  2. The bank's annual report
  3. The fund manager's employment contract
  4. The investor's account opening form

Explanation

The plan or declaration of trust and the prospectus set out the fund's objective, investment policy, eligible investments, and risk disclosures. These governing documents define what the fund may and may not do.

Question 46UITF Product Structures, Features, and Eligible Investments

Which of the following best describes the role of the fund manager in a UITF?

  1. Acting as custodian of the fund's securities
  2. Executing the investment policy within the limits set by the fund's governing documents Correct answer.
  3. Setting the NAVPU independently of market prices
  4. Guaranteeing the fund's principal and returns

Explanation

The fund manager makes investment decisions in accordance with the stated policy and limits in the fund's plan and prospectus. The manager does not guarantee returns and does not perform the custody function.

Question 47UITF Product Structures, Features, and Eligible Investments

Why does a UITF require a custodian bank separate from the fund manager?

  1. To safekeep fund assets and provide independent oversight of transactions Correct answer.
  2. To approve the fund's investment policy
  3. To market the fund to retail investors
  4. To compute the fund's tax liabilities

Explanation

A separate custodian safekeeps the fund's securities and cash and provides independent oversight, reducing the risk of misappropriation by the manager. This segregation of duties is a core investor protection feature.

Question 48UITF Product Structures, Features, and Eligible Investments

What does a UITF's stated investment objective typically describe?

  1. The fee the fund will charge each investor
  2. The number of units the fund will issue
  3. The exact annual return the fund will deliver
  4. The return and risk profile the fund seeks to achieve Correct answer.

Explanation

The investment objective communicates the return and risk profile the fund targets, guiding the choice of eligible investments. It is aspirational and not a promise of a specific return.

Question 49UITF Product Structures, Features, and Eligible Investments

A money market UITF holds primarily short-term, high-quality debt instruments. Which investment is most consistent with that mandate?

  1. A real estate property
  2. A listed equity security
  3. A 30-day bank certificate of deposit Correct answer.
  4. A 10-year corporate bond

Explanation

Money market funds invest in short-term, high-quality instruments such as certificates of deposit, treasury bills, and commercial paper with short maturities. Long-dated bonds, equities, and real estate fall outside a money market mandate.

Question 50UITF Product Structures, Features, and Eligible Investments

A bond UITF's portfolio consists largely of fixed-income securities. How does rising market interest rates typically affect the fund's NAVPU?

  1. It rises only if the fund holds equities
  2. It tends to rise because bond prices rise as yields rise
  3. It tends to decline because bond prices fall as yields rise Correct answer.
  4. It is unaffected because bond coupons are fixed

Explanation

Bond prices move inversely to market yields, so when interest rates rise, the market value of the fund's bond holdings generally falls and NAVPU declines. Longer-duration bonds are more sensitive to this effect.