Financial Planning Strategies

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Questions and Answers

What is the primary objective of investing in an instrument that generates returns higher than the inflation rate?

To diversify the investment portfolio

To minimize risk

To reduce tax liability

To maintain the purchasing power of the investment (correct)

Which of the following is a principle of Islamic finance?

Speculating in financial markets

Investing in debt securities

Earning interest on investments

Sharing risk and reward (correct)

What is the impact of a lower tax rate on investments?

It increases the risk of the investment

It has no impact on the investment

It increases the expected returns of the investment (correct)

It reduces the expected returns of the investment

What is the primary goal of unit trust management?

To minimize risk and maintain capital Signup and view all the answers

What happens to the value of money when the inflation rate is high?

It decreases in value Signup and view all the answers

Which of the following is a strategy to combat the effects of inflation?

Investing in instruments that generate returns higher than the inflation rate Signup and view all the answers

What is the impact of inflation on investment returns?

It decreases investment returns Signup and view all the answers

Why is it important to consider tax implications when investing?

To minimize tax liability Signup and view all the answers

What type of investment allows investors with similar objectives to pool their savings?

Unit trust Signup and view all the answers

What is the management expenses ratio (MER) of ABC Fund for the year ended 30 Dec 200x?

1.03% Signup and view all the answers

What does a gradually decreasing MER over a period of several years indicate?

UTMC is managing its operating cost efficiently for its fund size Signup and view all the answers

How do investors overcome the impact of inflation?

By investing in inflation-indexed instruments Signup and view all the answers

What type of investment portfolio contains only one type of asset?

Single-asset portfolio Signup and view all the answers

What is the benefit of investing in a collective investment scheme?

Diversification of investments Signup and view all the answers

What is the main advantage of investing in a unit trust?

Diversification of investments Signup and view all the answers

What is the purpose of a trustee fee in a unit trust?

To pay for the safekeeping of the assets Signup and view all the answers

What is the 'Call Margin' in the context of unit trust investment?

An amount the investor might have to pay his/her financier if the credit exposure of a unit trust loan falls beneath a certain level Signup and view all the answers

What is the 'Cooling Off' right in unit trust investment?

An opportunity to reconsider the purchase Signup and view all the answers

What is NOT a major content of an Annual Report of a Unit Trust Scheme?

Cooling Off Right Signup and view all the answers

What affects the effective rate of return of an investment?

Inflation rate and tax impact Signup and view all the answers

What is the purpose of an Annual Report of a Unit Trust Scheme?

To disclose the performance and operations of the scheme Signup and view all the answers

What should an investor do if they feel misled by the financier about the investment?

Exercise the cooling off right Signup and view all the answers

What is the impact of inflation on the effective rate of return of an investment?

It reduces the effective rate of return Signup and view all the answers

What is the relationship between the unit trust management and the unit holder?

The unit trust management manages the investment on behalf of the unit holder Signup and view all the answers

Study Notes

Investment Strategies

To overcome the impact of inflation, investors should cut down unnecessary expenses, invest in instruments that generate higher returns than the inflation rate, and consider lowering tax rates on investments.

Call Margin

Call margin refers to an amount an investor might have to pay their financier if the credit exposure of a unit trust loan falls below a certain level.

Investor Advice

If an investor feels misled or uncertain about a unit trust purchase, they can exercise their "cooling-off" right, which allows them to reconsider their purchase.

Annual Report

An Annual Report on a unit trust's performance typically includes:
- Average Annual Return over one, three, and five years and since launch
- Investment objectives and policies
- Auditor's Report
It does not include the "Cooling-Off Right".

Effective Rate of Return

The effective rate of return after tax and inflation is not defined in this context.

Collective Investment

A collective investment allows investors with similar objectives to pool their savings.

Management Expenses Ratio (MER)

The MER is calculated by dividing the total expenses incurred by the average fund size.
In the example given, the MER is calculated as: (RM1,340,999 + RM730,173 + RM172,641 + RM361,594) / RM250,492,853 = 1.07%.
A gradually decreasing MER over several years indicates that the Unit Trust Management Company (UTMC) is managing its operating cost efficiently for its fund size.

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Description

This quiz assesses knowledge of effective strategies for managing finances, including reducing expenses, optimizing tax rates, and investing wisely. Test your understanding of personal finance concepts.