Managed Products Chapter Overview
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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.</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.</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.</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.</p> Signup and view all the answers

    What primarily distinguishes segregated funds from mutual funds?

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

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

    <p>Segregated funds</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</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.</p> Signup and view all the answers

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

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

    What is a primary disadvantage associated with LSVCCs?

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

    How do closed-end funds initially raise capital?

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

    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.

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    Related Documents

    CSC Volume 2 Chapter 10 PDF

    Description

    This quiz covers the essential aspects of various managed products, including segregated funds, Labour-Sponsored Venture Capital Corporations, closed-end funds, and income trusts. It aims to enhance understanding of their structures, advantages, regulatory issues, and tax considerations, while also delving into private equity investments.

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