CMFAS M5 Exam Free Trial

Explanation: One of the functions and responsibilities of the manager under the Revised Code On Collective Investment Schemes is to determine the investment objectives of the collective investment scheme. The manager plays a crucial role in setting the direction and goals of the scheme, taking into account factors such as risk tolerance, investment strategy, and target returns. The investment objectives define the purpose and focus of the scheme and guide the manager in making investment decisions on behalf of the investors. By determining the investment objectives, the manager establishes the framework within which the scheme operates and aligns it with the interests of the investors.

Explanation: One of the key responsibilities of Mr. X as a manager of a collective investment scheme, as per the Revised Code On Collective Investment Schemes, is to ensure compliance with legal and regulatory requirements. Managers have a duty to operate the scheme in accordance with applicable laws, regulations, and guidelines. This includes adhering to the provisions of the revised code itself. By fulfilling this responsibility, Mr. X helps to maintain the integrity of the collective investment scheme industry, protects the interests of investors, and ensures that the scheme operates within the prescribed framework.

Explanation: Under the Revised Code On Collective Investment Schemes, the manager and the custodian have distinct roles and responsibilities. The manager is primarily responsible for the investment decision-making process. They analyze market conditions, select suitable investments, and manage the portfolio of the collective investment scheme. On the other hand, the custodian is responsible for safeguarding the scheme’s assets. They hold and protect the scheme’s assets in custody, ensuring that they are properly segregated and accounted for. The custodian acts as an independent custodian of the assets, providing an additional layer of protection for the investors. By understanding the respective roles of the manager and the custodian, the scheme can operate efficiently and securely.

Explanation: One of the operational obligations of the manager under the Revised Code On Collective Investment Schemes is to manage the scheme’s assets and portfolio. This includes making investment decisions, monitoring the performance of the investments, and taking appropriate actions to achieve the scheme’s investment objectives. The manager is responsible for implementing the investment strategy, ensuring proper risk management, and maintaining the overall integrity and quality of the scheme’s assets. By effectively managing the scheme’s assets and portfolio, the manager seeks to maximize returns for the investors while managing risks within the prescribed parameters.

Explanation: Under the Revised Code On Collective Investment Schemes, the manager has an obligation to disclose conflicts of interest to the investors. Conflicts of interest can arise when the manager’s personal or financial interests conflict with the interests of the investors. By disclosing these conflicts, the manager promotes transparency and allows the investors to make informed decisions. The disclosure should include the nature of the conflict, how it may affect the investors, and any measures taken to mitigate the conflict. By fulfilling this obligation, the manager demonstrates a commitment to maintaining the trust and confidence of the investors and upholds the principles of fair dealing and integrity.

Explanation: The Revised Code On Collective Investment Schemes imposes an obligation on the manager to determine the fair value of the scheme’s assets. Fair value represents the estimated price at which an asset would be exchanged between knowledgeable and willing parties in an arm’s length transaction. The manager must establish and consistently apply appropriate valuation methodologies to ensure that the assets are fairly and accurately valued. This obligation helps to ensure transparency and fairness in the valuation process and provides investors with reliable information about the value of their investments. By fulfilling this obligation, the manager contributes to the integrity and credibility of the collective investment scheme.

Explanation: When delegating functions or duties, the manager should maintain oversight and control over the delegated tasks, as per the Revised Code On Collective Investment Schemes. Delegation is a common practice in the investment management industry, as it allows managers to leverage the expertise and resources of others. However, it is important for the manager to ensure that the delegated tasks are performed effectively and in line with the manager’s objectives and obligations. By maintaining oversight and control, the manager can monitor the performance of the delegates, assess their suitability, and take appropriate action if necessary. This helps to mitigate potential risks and ensures that the delegated functions or duties are carried out in the best interests of the investors.

Explanation: When delegating the valuation function of the scheme’s assets, Mr. X should consider that the external valuer is independent and competent, as required by the Revised Code On Collective Investment Schemes. Independence ensures that the valuer can perform their duties objectively and without any conflicts of interest. Competence ensures that the valuer has the necessary skills, knowledge, and experience to accurately value the assets. By selecting an independent and competent external valuer, Mr. X can enhance the credibility and reliability of the valuation process, providing investors with accurate and reliable information about the value of their investments.

Explanation: The manager retains responsibility for the delegated functions or duties, as stated by the Revised Code On Collective Investment Schemes. Delegation does not absolve the manager of their obligations and accountability. Even when tasks are delegated, the manager is ultimately responsible for ensuring that the delegated functions or duties are performed in accordance with applicable laws, regulations, and guidelines. The manager should maintain oversight, exercise due diligence, and take appropriate action if the delegates fail to fulfill their responsibilities. By maintaining responsibility for the delegated functions or duties, the manager upholds their role as the fiduciary and ensures that the collective investment scheme is managed in the best interests of the investors.

Explanation: When making investments in other schemes, the manager should consider the investment objectives and risks of those schemes, as per the Revised Code On Collective Investment Schemes. This consideration ensures that the investments align with the manager’s own investment objectives and risk tolerance. The manager should assess the investment strategy, asset allocation, and risk management practices of the other schemes to determine their suitability. By considering the investment objectives and risks, the manager enhances the potential for achieving the desired investment outcomes and reduces the potential for undue risk exposure.

Explanation: Before making an investment in another scheme, Mr. X should conduct due diligence on the other scheme and its manager, as required by the Revised Code On Collective Investment Schemes. Due diligence involves a comprehensive assessment of various factors, including the investment strategy, performance track record, risk management practices, and regulatory compliance of the other scheme. Additionally, Mr. X should evaluate the reputation, experience, and qualifications of the other scheme’s manager. By conducting due diligence, Mr. X can make an informed decision, mitigate potential risks, and ensure that the investment aligns with the best interests of the investors in his own scheme.

Explanation: The manager has an obligation to ensure that investments in other schemes are in line with the scheme’s investment objectives and risk profile, as per the Revised Code On Collective Investment Schemes. This obligation ensures that the investments are consistent with the overall investment strategy and risk tolerance of the scheme. The manager should assess whether the investment in another scheme complements the existing portfolio, provides diversification benefits, and aligns with the investment goals of the investors. By fulfilling this obligation, the manager aims to optimize the risk-return tradeoff and enhance the long-term performance of the collective investment scheme.

Explanation: When making payments from a collective investment scheme, the manager has a responsibility to ensure that the payments are made in a fair and timely manner, as stated by the Revised Code On Collective Investment Schemes. Fairness ensures that all parties receiving payments are treated equitably and in accordance with the scheme’s governing documents and applicable laws. Timeliness ensures that payments are made within the stipulated timeframes and in accordance with contractual obligations. By prioritizing fairness and timeliness in payments, the manager upholds the fiduciary duty to act in the best interests of the investors and maintains transparency and accountability in the scheme’s operations.

Explanation: Before making a payment to a service provider, Mr. X should ensure that the payment is justified and reasonable for the services provided, as required by the Revised Code On Collective Investment Schemes. Justification and reasonableness involve assessing the value and quality of the services rendered in relation to the payment being made. Mr. X should consider factors such as the market rates for similar services, the complexity of the services provided, and the benefits derived from those services. By ensuring that the payment is justified and reasonable, Mr. X fulfills his duty to act in the best interests of the investors and ensures that the scheme’s resources are utilized effectively.

Explanation: The manager has a responsibility to ensure that payments from a collective investment scheme are made in compliance with legal and contractual obligations, as per the Revised Code On Collective Investment Schemes. This responsibility ensures that the payments are made in accordance with applicable laws, regulations, and the scheme’s governing documents. The manager should review and adhere to any restrictions or conditions related to payments, such as restrictions on related party transactions or compliance with anti-money laundering regulations. By fulfilling this responsibility, the manager upholds transparency, accountability, and the fiduciary duty to act in the best interests of the investors in the scheme.

Explanation: When charging performance fees, the manager is required to ensure that the fee structure is fair and aligned with the scheme’s objectives, as stated in the Revised Code On Collective Investment Schemes. This requirement ensures that the performance fees are reasonable and reflect the value added by the manager in generating positive investment returns. The manager should consider factors such as the benchmark used for comparison, the performance measurement period, and the fee calculation methodology. By aligning the performance fee structure with the scheme’s objectives, the manager promotes transparency, fairness, and the alignment of interests between the manager and the investors.

Explanation: When charging performance fees, Mr. X should ensure that the fees are commensurate with the value added by the manager, as required by the Revised Code On Collective Investment Schemes. This consideration ensures that the fees are reasonable and proportionate to the investment performance achieved. Mr. X should assess the extent to which the manager’s actions and decisions contributed to generating the exceptional performance and calculate the fees accordingly. By ensuring that the performance fees are commensurate with the value added, Mr. X upholds fairness, transparency, and the fiduciary duty to act in the best interests of the investors.

Explanation: The manager has a responsibility to ensure that the performance fee calculation is transparent and well-documented, as per the Revised Code On Collective Investment Schemes. This responsibility ensures that investors have a clear understanding of how the performance fees are calculated and how they impact their investment returns. The manager should provide detailed information on the fee calculation methodology, performance measurement period, and any applicable high-water mark provisions. By fulfilling this responsibility, the manager promotes transparency, accountability, and investor confidence in the scheme’s operations.

Explanation: When naming a collective investment scheme, it is required that the name of the scheme be descriptive of the investment strategy, as stated in the Revised Code On Collective Investment Schemes. This requirement ensures that the name provides investors with a clear understanding of the type of investments the scheme focuses on. A descriptive name helps investors make informed decisions and align their investment objectives with the scheme’s strategy. It also promotes transparency and clarity in the marketing and communication of the scheme to potential investors.

Explanation: When choosing a name for a collective investment scheme, Mr. X should consider selecting a name that is unique and distinct from other existing schemes, as required by the Revised Code On Collective Investment Schemes. This consideration helps avoid confusion among investors and ensures that the scheme’s identity is clearly differentiated from others in the market. Mr. X should conduct thorough research to check the availability of the chosen name and assess its potential for trademark infringement or misleading associations. By selecting a unique and distinct name, Mr. X strengthens the scheme’s branding, enhances investor recognition, and maintains the integrity of the scheme.

Explanation: The Revised Code On Collective Investment Schemes stipulates that the name of a collective investment scheme should be descriptive and not misleading. This requirement ensures that the name provides investors with a clear understanding of the investment strategy and nature of the scheme. The name should accurately reflect the key characteristics of the scheme, such as the investment objectives, asset classes, or geographic focus. By using a descriptive name, investors can make informed decisions and assess the suitability of the scheme for their investment goals. Avoiding misleading names is crucial to maintain transparency and prevent investors from being misled or confused about the scheme’s nature or risks.

Explanation: The Revised Code On Collective Investment Schemes prohibits collective investment schemes from engaging in short-term trading to maximize profits. This restriction is in place to prevent excessive trading activities that may lead to higher transaction costs and potentially harm the scheme’s long-term performance. By discouraging short-term trading, the code promotes the focus on prudent investment strategies, long-term value creation, and the best interests of the investors.

Explanation: Before engaging in any new investment activity, Mr. X should ensure that the activity complies with all relevant laws and regulations, as required by the Revised Code On Collective Investment Schemes. Compliance with laws and regulations is essential to protect the interests of the investors and maintain the integrity of the scheme’s operations. Mr. X should conduct thorough due diligence, seek legal advice if necessary, and assess the potential risks and benefits of the activity. By complying with the legal framework, Mr. X upholds transparency, accountability, and the fiduciary duty to act in the best interests of the investors.

Explanation: The Revised Code On Collective Investment Schemes outlines the activities that are prohibited for a collective investment scheme. The scheme must adhere to these prohibitions and cannot engage in any activities that are deemed prohibited by the code. Prohibited activities are designed to protect investors, ensure fair and transparent operations, and maintain the overall integrity of the scheme. It is crucial for scheme managers to be aware of and comply with these restrictions to fulfill their fiduciary duty and regulatory obligations.

Explanation: Limited liability, as defined in the Revised Code On Collective Investment Schemes, means that investors in a collective investment scheme are not personally liable for any losses incurred by the scheme beyond their investment amount. This principle provides protection to individual investors and limits their financial exposure to the amount they have invested in the scheme. Even if the scheme incurs significant losses, investors’ personal assets remain protected, and they are not obligated to contribute additional funds. Limited liability encourages investors to participate in collective investment schemes by mitigating their risk and providing a level of financial security.

Explanation: As per the Revised Code On Collective Investment Schemes, Mr. X should expect to have limited liability if he decides to invest in a collective investment scheme. This means that he will not be personally liable for losses incurred by the scheme beyond his investment amount. Limited liability protects Mr. X’s personal assets and ensures that his financial exposure is limited to the amount he has invested. It is important for Mr. X to understand this concept as it provides him with confidence and peace of mind when considering investing in the scheme.

Explanation: The concept of limited liability, as defined in the Revised Code On Collective Investment Schemes, means that investors in a collective investment scheme have limited liability and are not personally liable for losses beyond their investment amount. This principle offers protection to individual investors by ensuring that their personal assets are not at risk in case the scheme incurs losses. Limited liability encourages investor participation in collective investment schemes by providing a clear boundary to their financial responsibility. It is essential for investors to be aware of this concept to understand the level of risk associated with their investment and make informed decisions.

Explanation: The core requirement for investments in a collective investment scheme, as outlined in the Revised Code On Collective Investment Schemes, is diversification to manage risk. Diversification involves spreading investments across different asset classes, such as stocks, bonds, and real estate, as well as within each asset class, to reduce concentration risk. By diversifying investments, the scheme aims to mitigate the impact of any individual investment’s poor performance on the overall portfolio. This strategy helps to achieve a balance between risk and return, enhances the scheme’s resilience, and provides investors with a more stable and consistent investment experience.

Explanation: According to the Revised Code On Collective Investment Schemes, Mr. X should consider diversifying the scheme’s investments to manage risk before making any investment decisions. Diversification is a core requirement that helps to spread the scheme’s investments across different asset classes and minimize the potential impact of individual investment risks. By diversifying, Mr. X can reduce the vulnerability of the scheme to the poor performance of any single investment. It is important for Mr. X to carefully assess the investment opportunity and ensure that it aligns with the scheme’s objectives while adhering to the principle of diversification.

Explanation: The Revised Code On Collective Investment Schemes states that the core requirement for investments in a collective investment scheme is diversification to manage risk. This means that investments should be spread across different asset classes and within each asset class to reduce concentration risk. By diversifying investments, the scheme aims to achieve a balanced portfolio that can withstand market fluctuations and minimize the impact of any individual investment’s poor performance. Diversification is a fundamental principle that helps protect the interests of investors and promote the stability and long-term success of the scheme.