Chartered Institute of Stockbrokers (CISI) Professional Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Study for the CISI Professional Exam. Prepare with flashcards and multiple choice questions, each question comes with hints and explanations. Ensure your success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What is a key feature of unit trusts and OEICs?

They provide fixed returns.
Their valuation is directly linked to the value of the assets.
They are not regulated by the FCA.
Investments are guaranteed by the government.

The correct answer is: Their valuation is directly linked to the value of the assets.

Unit trusts and Open-Ended Investment Companies (OEICs) are collective investment schemes that pool investors' money to invest in a diversified portfolio of assets. A key feature of these investment vehicles is their valuation, which is directly linked to the value of the underlying assets in which they invest. This means that as the market values of the assets fluctuate, the net asset value (NAV) of the unit trust or OEIC also changes correspondingly. Investors' shares in these funds are bought and sold based on this NAV, ensuring that the price reflects the real-time value of the fund's investments. This characteristic emphasizes the principle of transparency in these investment vehicles, as investors can see how their investment performance is tied to the actual performance of the assets held within the fund. It also underscores the concept of risk, as the value of their investment can rise and fall with market conditions, unlike fixed-return products that promise certain outcomes regardless of market performance.