Cassim Assest 2

2ai)An investment trust is a type of collective investment scheme that pools money from investors to
invest in a diversified portfolio of assets such as equities, bonds and property.
An investment trust is an open-ended scheme which means once the initial tranche of money is raised
the fund is closed to new money.
Only way to invest into an investment trust after this is to buy shares from willing sellers in the market
and are traded like shares of other companies.
Because shares in the trust are traded in the same manner as other company shares the market supply
and demand factors will set the price.
A guide to what the share price might be expected to be is the Net Asset Value per share which is the
value of the assets divided by the number of shares.
In terms of its legal structure, an investment trust is structured as a company which means it would have
increase ability to borrow compared to unit trusts.
The basis on which an investment trust operates depends on its investment strategy and objectives.
For example, some investment trusts may focus on income generation, while others may focus on capital
appreciation.
The trust's investment decisions are typically made by an investment manager or a team of managers,
who are responsible for implementing the trust's investment strategy.
The trust's performance is typically measured against a benchmark, such as an index.
2aii) A key difference between an OEIC and an investment trust is the way in which they issue and
redeem shares.
An OEIC is an open-ended scheme, meaning investors can buy and sell shares directly with the fund
manager, who creates or cancels shares as necessary to meet investor demand. This means that the
fund's size can expand or contract based on investor activity.
In contrast, an investment trust is a close-ended scheme and issues a fixed number of shares, which are
traded on a stock exchange like any other security. The price of the shares is determined by supply and
demand factors in the market.
This would imply different levels of marketability of shares (close ended needing to be traded while
OEIC’s having guaranteed marketability), different levels of gearing (higher levels of gearing for close
ended schemes).
2aiii) The investment strategy of a collective investment vehicle (CIV) is influenced by a variety of factors,
including:
Investment objectives: The investment objectives of the CIV will determine the types of assets that the
fund will invest in. For example, a CIV that aims to provide income to investors will likely invest in fixed-
income securities, while a CIV that aims to provide capital growth will likely invest in equities or real
estate.
Risk tolerance: The risk tolerance of the CIV and its investors will also influence the investment strategy.
A CIV with a high risk tolerance may invest in higher-risk assets, such as emerging market equities or
high-yield bonds, while a CIV with a lower risk tolerance may invest in more conservative assets, such as
government bonds or cash.
Time horizon: The time horizon of the CIV will also impact its investment strategy. A CIV with a longer
time horizon, such as a pension fund, may invest in assets with longer maturities. While a CIV with a
shorter time horizon, such as a money market fund, may invest in short-term, low-risk assets.
Market conditions: The prevailing market conditions, including economic factors, political events, and
regulatory changes, can also impact the investment strategy of the CIV. For example, a CIV may adjust its
strategy in response to changes in interest rates, inflation, or currency exchange rates.
Manager expertise: The expertise and experience of the fund manager or investment team will also play
a role in the CIV's investment strategy. The manager's analysis and assessment of the market conditions,
as well as their understanding of the specific assets and sectors, will inform their investment decisions.
Regulatory framework: The regulatory framework that governs the CIV will also impact its investment
strategy. Regulations may limit the types of assets that the CIV can invest in or impose restrictions on the
level of risk that the fund can take.
2bi) The annual or monthly expenses of the household (eg. Groceries).
If the wife dies first, then there would be a need to pay someone to look after the frail husband.
Information regarding any debt that the individuals or the business have outstanding.
Information regarding any expenses or taxes that have arisen from the sale of the business.
Any additional care products that would be needed for the care of the husband with Alzheimer’s
disorder.
2bii) The couple will receive a 1000 000-pound cash sum for the sale of the business.
They should keep a small proportion of this in cash to meet short term liabilities such as the current
expenses of the household and any unforeseen expenses.
If there is outstanding debt some of the proceeds should be used be used to settle the full amount as
early as possible.
This is because the debt will be accruing interest at a higher rate than most risk-free or relatively risk-free
investments.
The expenses or taxes that are owed for the sale of the business should be paid at the time of purchase
so no explicit provision might be needed.
The rest of the money should be used to purchase a relatively secure asset since this is the only asset the
couple has besides the house.
The asset should be an income bearing asset since the couple will need regular payments to fund the
lifestyle of the frail husband and the daily future expenses of the handicapped wife.
A possible asset that could be purchased would be a joint life annuity that would cease payment on the
death of the last surviving life. The income should be index linked to protect against the eroding effects
of inflation.
This would also mean they would favour assets with high income yields rather than assets accruing
future capital gains.
The couple would not need capital gains as they have no dependants.
The couple would not be able to sell the house immediately (less marketable) due to it being highly
customised for use of the frail husband.
The house could be used to purchase an equity release product that would pay regular income in
exchange for the ownership of the house when both members of the couple have died.
The wife should also purchase a frail care policy if she is the first of the two lives to die since she would
need someone to look after the husband.
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Cassim Assest 2

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2ai)An investment trust is a type of collective investment scheme that pools money from investors to

invest in a diversified portfolio of assets such as equities, bonds and property.

The trust's performance is typically measured against a benchmark, such as an index.

2bi) The annual or monthly expenses of the household (eg. Groceries).

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