Managed Products Chapter Overview

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the outcome when the market value of a segregated fund is below the guaranteed amount at death?

  • The beneficiary receives the total amount invested.
  • The beneficiary receives the guaranteed amount only. (correct)
  • The beneficiary may receive a combination of both.
  • The beneficiary receives the market value of the fund.

In the scenario where the market value of the segregated fund equals the guaranteed amount, what does the beneficiary receive?

  • Nothing, as the fund just breaks even.
  • The guaranteed amount. (correct)
  • The excess amount above the purchase price.
  • The total investment amount.

What happens to the death benefit if the market value of the segregated fund exceeds the guaranteed amount?

  • The beneficiary receives the market value of the fund. (correct)
  • The beneficiary is limited to the guaranteed amount.
  • The death benefit is canceled.
  • The beneficiary gets both the market value and guaranteed amount.

How does creditor protection operate with segregated funds?

<p>The assets are owned by the insurance company, offering protection in bankruptcy. (D)</p> Signup and view all the answers

What would Patricia receive if the market value of her segregated fund at Keith's death was $75,000?

<p>$80,000, being the market value. (C)</p> Signup and view all the answers

What is the death benefit received by Antoine if the market value of Ayida’s segregated fund is $65,000 at her death?

<p>$75,000, which is the guaranteed amount. (A)</p> Signup and view all the answers

How is the total death benefit calculated when the market value is less than the guaranteed amount?

<p>Guaranteed amount minus the market value. (D)</p> Signup and view all the answers

What primarily distinguishes segregated funds from mutual funds?

<p>Segregated funds are considered an insurance product. (B)</p> Signup and view all the answers

Which of the following is a common feature shared by all managed products?

<p>They all pool capital to purchase securities. (C)</p> Signup and view all the answers

What is one aspect of the investment structure of segregated funds?

<p>The proceeds are utilized to buy underlying assets. (B)</p> Signup and view all the answers

Which of the following managed products is primarily oriented toward providing creditor protection?

<p>Segregated funds (D)</p> Signup and view all the answers

Which feature is NOT typically associated with managed products like segregated funds?

<p>High fees regardless of performance (D)</p> Signup and view all the answers

What is one key characteristic of insurance proceeds in relation to bankruptcy?

<p>They typically fall outside the provisions of bankruptcy legislation. (A)</p> Signup and view all the answers

Which of the following groups would most likely benefit from creditor protection?

<p>Professionals and business owners. (D)</p> Signup and view all the answers

What condition must be met for the assets in a segregated fund to be eligible for creditor protection?

<p>The purchase must be made in good faith. (B)</p> Signup and view all the answers

What advantage do segregated funds offer in terms of estate planning?

<p>They enable avoidance of probate processes. (B)</p> Signup and view all the answers

What typically happens to the proceeds of a segregated fund upon the contract holder's death?

<p>They pass directly to the named beneficiaries. (D)</p> Signup and view all the answers

What is one of the additional costs associated with segregated funds compared to mutual funds?

<p>Higher management expense ratios. (A)</p> Signup and view all the answers

Under federal bankruptcy law, which of the following statements is true about segregated funds?

<p>They are not normally included in the creditor's estate assets. (D)</p> Signup and view all the answers

What could cause the proceeds of a segregated fund to be subject to seizure under bankruptcy law?

<p>If purchased with intention to evade creditors within a year before bankruptcy. (C)</p> Signup and view all the answers

What is a typical misconception regarding the appointment of beneficiaries in segregated funds?

<p>Named beneficiaries are irrelevant to creditor protection. (A)</p> Signup and view all the answers

What is a primary disadvantage associated with LSVCCs?

<p>Mandatory holding periods before redemption (D)</p> Signup and view all the answers

How do closed-end funds initially raise capital?

<p>By selling a limited number of shares (D)</p> Signup and view all the answers

What is a key characteristic of how closed-end fund prices are determined?

<p>Market supply and demand dynamics (B)</p> Signup and view all the answers

Which statement about the management fees of closed-end funds is accurate?

<p>They are generally lower than that of mutual funds. (B)</p> Signup and view all the answers

What happens to closed-end fund units after they are issued?

<p>They are listed for trading on a stock exchange. (D)</p> Signup and view all the answers

How does market sentiment affect closed-end funds regarding their trading values?

<p>It can cause funds to trade at discounts or premiums. (C)</p> Signup and view all the answers

What is typically true about the historical trading of closed-end funds?

<p>Most traded at discounts to their net asset value. (C)</p> Signup and view all the answers

What is one consequence of closed-end funds maintaining a large cash reserve?

<p>Reduced fund performance in rising markets. (C)</p> Signup and view all the answers

When an investor sells shares of a closed-end fund, what fee is typically incurred?

<p>A transaction commission (B)</p> Signup and view all the answers

Flashcards

Segregated Funds

A pooled investment that's structured as an insurance product. Insurance companies use investor funds to buy assets, then sell units to investors.

Insurance Product

A financial product where the insurance company acts as the main intermediary/distributor.

Pooled Investment

A fund where money from several investors is combined to invest in a portfolio of assets.

Mutual Fund

A type of managed fund pooling investor money to purchase various securities.

Signup and view all the flashcards

Investment Mandate

The specific guidelines of how the invested funds need to be managed.

Signup and view all the flashcards

Death Benefit Guarantee

The minimum amount an insurance company guarantees to pay to beneficiaries upon the death of a policyholder, even if the market value of the policy is lower.

Signup and view all the flashcards

Market Value at Death

The actual value of the segregated fund at the time of the policyholder's death, reflecting the performance of the underlying investments.

Signup and view all the flashcards

Total Amount Paid to Beneficiary

The final sum received by the beneficiary. It is either the death benefit guarantee, the market value at death, or the greater of the two.

Signup and view all the flashcards

Segregated Fund Benefit When Market Value is Lower

The beneficiary receives the death benefit guarantee amount, which is higher than the market value of the fund.

Signup and view all the flashcards

Segregated Fund Benefit When Market Value is Higher

The beneficiary receives the market value at death, which surpasses the death benefit guarantee.

Signup and view all the flashcards

Segregated Fund Benefit When Market Value Equals Guaranteed Amount

The beneficiary receives the death benefit guarantee amount, which is equal to the market value of the fund.

Signup and view all the flashcards

Creditor Protection in Segregated Funds

Segregated funds offer protection from creditors in case of bankruptcy because the assets are owned by the insurance company, not the policyholder.

Signup and view all the flashcards

Creditor Protection

A feature where assets are shielded from being seized by creditors to recover debt, offering security to individuals and businesses facing financial hardship.

Signup and view all the flashcards

Good Faith Purchase

A purchase made with genuine intent and not as a deceitful strategy to avoid potential creditor claims.

Signup and view all the flashcards

Beneficiary Designation

Specifying the person(s) who will receive the proceeds of an investment, insurance, or other financial product upon the owner's death.

Signup and view all the flashcards

Bypass Probate

Passing assets directly to beneficiaries without going through the legal process of estate administration.

Signup and view all the flashcards

Probate

The legal process of distributing a deceased person's assets according to their will or intestacy laws.

Signup and view all the flashcards

Segregated Fund Costs

Expenses associated with segregated funds, including management fees, death benefits, and maturity guarantees.

Signup and view all the flashcards

Bankruptcy Protection

Segregated funds are usually exempt from being divided among creditors during bankruptcy.

Signup and view all the flashcards

Time Limit for Protection

Segregated fund proceeds may not be protected if the purchase was made within a year before bankruptcy.

Signup and view all the flashcards

Bankruptcy Trustee

An individual appointed by a bankruptcy court to manage the debtor's assets and distribute them fairly to creditors.

Signup and view all the flashcards

LSVCC Redemption

Investors might need to repay tax credits received when redeeming Life Skills Venture Capital Corporation (LSVCC) shares early, before a specified holding period.

Signup and view all the flashcards

LSVCC Higher Costs

LSVCCs have higher costs due to the labor-intensive nature of venture capital investing. These costs are reflected in higher management expense ratios (MERs) compared to conventional equity funds.

Signup and view all the flashcards

Closed-end Fund

A type of pooled investment fund where investors buy a fixed number of shares at the initial offering. The fund manager invests the collected capital in a portfolio of securities.

Signup and view all the flashcards

Closed-end Fund Trading

Closed-end fund units are traded on stock exchanges where investors buy or sell through brokers, incurring trading commissions, rather than front-end loads.

Signup and view all the flashcards

Closed-end Fund Valuation

The price of closed-end fund units is determined by market supply and demand, fluctuates based on the underlying asset value, and may trade at a discount, par, or premium.

Signup and view all the flashcards

Closed-end Fund Discount

Closed-end funds often trade at a discount to their net asset value per share (NAVPS), which is the total value of the fund's assets minus liabilities divided by the number of shares.

Signup and view all the flashcards

Closed-end Fund Discount Significance

A higher discount can indicate negative market sentiment towards the fund, but a significant discount compared to historical norms needs further investigation.

Signup and view all the flashcards

Closed-end Fund Management Fees

The management fees charged by closed-end funds are generally lower than those charged by mutual funds with a similar investment objective.

Signup and view all the flashcards

Closed-end Fund Cash Reserve

Closed-end funds need to keep a large cash reserve to cover potential redemptions, which can drag down fund performance during periods of market growth.

Signup and view all the flashcards

Study Notes

Other Managed Products

  • Additional types of managed products, including their structure, characteristics, regulatory issues, and tax considerations, are covered in this chapter
  • Key learning objectives include describing segregated funds, Labour-Sponsored Venture Capital Corporations, closed-end funds, and income trusts. There is also an analysis of investing in private equity.

Learning Objectives

  • Describe the features and structure of segregated funds
  • Discuss the advantages and disadvantages of Labour-Sponsored Venture Capital Corporations.
  • Describe the features and structure of closed-end funds
  • Differentiate among the types of income trusts
  • Describe the advantages, disadvantages, and process for investing in private equity

Segregated Funds

  • A type of pooled investment, similar to a mutual fund, but considered an insurance product
  • Proceeds are used to purchase underlying assets, with units sold to investors
  • Offer professional investment management, advice, and regular client statements
  • Unique features for special client needs, such as maturity protection, death benefits, and creditor protection.

Labour-Sponsored Venture Capital Corporations (LSVCCs)

  • Managed investment funds sponsored by labour organizations to provide capital for small to medium-sized and emerging companies
  • Main attractions are federal and provincial tax credits (up to 17.5%)
  • Considered a high-risk, speculative investment

Closed-End Funds

  • Pooled investment funds that initially raise capital by selling a limited number of shares
  • Shares trade on a stock exchange, with commissions paid on transactions
  • Prices are based on market supply and demand, as well as underlying asset value, which can trade at discounts, par, or a premium relative to their NAV
  • Can be used for specific investment strategies such as certain alternative strategies, less liquidity, and holding of assets

Income Trusts

  • Similar to closed-end funds, investors purchase ownership interests in the trust
  • Can be categorized as REITs (Real Estate Investment Trusts) or business trusts
  • REITs purchase real estate and pass on rental income to investors; diversified holdings in real estate sectors
  • Business trusts purchase assets of underlying companies, usually in manufacturing, retail, or service industries.

Private Equity

  • Financing for companies unwilling or unable to find capital in the public markets (stocks and bonds)
  • Includes private debt and equity investments
  • Generally offers high returns, but with higher risks compared to other investment types, such as public equity and bonds.
  • Private equity has specific investment vehicles including leveraged buyouts, growth capital, turnaround situations, early-stage venture capital, late-stage venture capital, and distressed debt.
  • Listed private equity firms trade on stock exchanges, offering diversified investments in various companies.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

CSC Volume 2 Chapter 10 PDF

More Like This

Managed Products Overview
30 questions
Private Equity and Segregated Funds Quiz
20 questions
Segregated Schools and Brown vs. Board
5 questions

Segregated Schools and Brown vs. Board

LargeCapacityForgetMeNot3487 avatar
LargeCapacityForgetMeNot3487
Use Quizgecko on...
Browser
Browser