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?

The assets are owned by the insurance company, offering protection in bankruptcy. (D) 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?

$80,000, being the market value. (C) 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?

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

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

Guaranteed amount minus the market value. (D) Signup and view all the answers

What primarily distinguishes segregated funds from mutual funds?

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

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

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

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

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

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

Segregated funds (D) Signup and view all the answers

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

High fees regardless of performance (D) Signup and view all the answers

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

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

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

Professionals and business owners. (D) Signup and view all the answers

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

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

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

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

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

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

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

Higher management expense ratios. (A) Signup and view all the answers

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

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

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

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

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

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

What is a primary disadvantage associated with LSVCCs?

Mandatory holding periods before redemption (D) Signup and view all the answers

How do closed-end funds initially raise capital?

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

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

Market supply and demand dynamics (B) Signup and view all the answers

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

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

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

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

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

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

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

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

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

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

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

A transaction commission (B) 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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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.