Chapter 4 M9A - Introduction To Structured Ilp

Soft dollars are a form of payment made by fund managers for various services related to portfolio analyses, data and quotation services, and research analyses. This means that fund managers use soft dollars to cover the costs of obtaining and analyzing data, as well as conducting research. Therefore, the correct answer is "all of the above" as soft dollars are paid for all these services.

Structured ILPs, or Investment-Linked Policies, are investment products that combine insurance coverage with investment opportunities. They are suitable for buyers who are seeking capital appreciation but are also willing to take on a medium to high risk of losing their capital. This means that they are comfortable with the possibility of their investments not performing well and potentially losing money. Structured ILPs are not suitable for buyers who do not want any risk exposure at all, wish to provide death protection for their dependants, or are looking for a steady stream of payouts for life.

Market risks can be diversified across different asset classes, geographical locations, and by using negatively correlated securities. Diversification across different asset classes helps to spread the risk by investing in a variety of assets such as stocks, bonds, and commodities. Diversification across different geographical locations helps to reduce the impact of regional economic or political events on the portfolio. Using negatively correlated securities means investing in assets that tend to move in opposite directions, which can further reduce the overall risk in the portfolio. Therefore, all of the above options are correct ways to diversify market risks.

A fund report is not required at the point-of-sale for a structured ILP. The other options, such as the product highlights sheet, benefit illustration, and product summary, are typically required to be provided to the customer at the point-of-sale. These documents provide important information about the structured ILP, such as its features, benefits, and potential risks. However, a fund report, which provides detailed information about the performance and holdings of the funds within the ILP, is not typically required to be provided at the point-of-sale.

The point-of-sales disclosure includes the product summary, benefit illustration, and product highlights sheet. These documents provide information about the product, its features, and the potential benefits to the consumer. The application form, on the other hand, is not a disclosure document but rather a form that the consumer fills out to apply for the product. Therefore, the application form is the exception in this case.

A bank can use credit default swaps to transfer the credit risk of a borrower in exchange for a series of fee payments. Credit default swaps are financial derivatives that allow the bank to transfer the risk of default on a loan or bond to another party. In this case, the bank would pay a series of fees to the counterparty in exchange for them assuming the credit risk of the borrower. This helps the bank to mitigate its exposure to potential losses in case of default by the borrower.

The correct answer is Expense Ratio. The expense ratio is a measure of the operating expenses of a mutual fund or ETF, expressed as a percentage of the fund's average net assets. It includes management fees, administrative fees, and other expenses incurred by the fund. The expense ratio is an important factor to consider when evaluating the cost of investing in a fund, as it directly affects the fund's overall return. A lower expense ratio is generally preferred as it means a higher portion of the fund's assets are being used for investment purposes rather than expenses.

A structured investment-linked product should be valued at least once a month to ensure that the investment portfolio is being properly managed and to provide accurate and up-to-date information to investors. This frequency allows for timely adjustments to be made if necessary and helps to minimize the risk of potential losses. Valuing the product less frequently, such as once every two or three years, may result in outdated and inaccurate information, which could lead to poor investment decisions. Valuing the product only when there are significant changes to the investment portfolio would not provide regular and consistent monitoring of the product's value.

The correct answer is "total value of the assets in the fund less total liabilities" because the Net Asset Value (NAV) of a fund is calculated by subtracting the total liabilities of the fund from the total value of the assets. This gives an accurate representation of the fund's value and is commonly used to determine the price at which shares of the fund are bought and sold.

A structured ILP has a more complex structure compared to a regular ILP. This means that it may have additional features or components that make it more intricate and sophisticated. This complexity can offer more flexibility and customization options for the policyholder but may also require a deeper understanding of the product.

One of the characteristics of structured Investment-linked Life Insurance policies (ILPs) is that the sub-funds are in tailor-made products. This means that the investment options within the ILP are customized to meet the specific needs and preferences of the policyholder. This allows for greater flexibility and control over the investment strategy.

One of the characteristics of structured Investment-linked Life Insurance policies (ILPs) is that the sub-funds are in tailor-made products. This means that the investment options within the ILP are customized to meet the specific needs and preferences of the policyholder. This allows the policyholder to have more control over their investments and choose options that align with their risk tolerance and financial goals.

The given statement states that the fund aims to provide long-term capital appreciation and achieve the best possible result. This aligns with the description of an ILP (Investment-Linked Policy) with capital appreciation potential, as it suggests that the policy is designed to grow the invested capital over time.

Investing in a structured ILP offers several advantages, such as portfolio diversification, access to bulky investments, and economies of scale. However, the one advantage that it may not include is low fees and charges. This means that investors may have to pay higher fees and charges when investing in a structured ILP compared to other investment options.

Derivatives are financial instruments whose value is derived from an underlying asset, such as an index. They are designed to track the opposite direction of the underlying asset's movement. Therefore, if an index is moving in one direction, derivatives will track the opposite direction. Bonds, fixed income instruments, and warrants do not necessarily track the opposite direction of an index.

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The expense ratio is a measure of the cost of owning a mutual fund. It is calculated by dividing the sub-fund's operating expenses by the daily average net asset value (NAV). This ratio indicates the percentage of a fund's assets that are used to cover operating expenses such as management fees, administrative costs, and other expenses. A lower expense ratio is generally preferred as it means that a larger portion of the fund's returns are being passed on to the investors.

The combination of a synthetic bond and a derivative is considered the most risky investment. Synthetic bonds are financial instruments that mimic the characteristics of bonds but are not actually backed by any real assets. Derivatives, on the other hand, are financial contracts whose value is derived from an underlying asset. Both synthetic bonds and derivatives are complex and can involve high levels of risk and volatility. Therefore, combining these two risky investments together would create the most risky investment option.

Investing in structured ILPs (Investment-Linked Policies) has a disadvantage of fees and charges. These fees can include policy fees, administration fees, and fund management fees, which can reduce the overall returns on the investment. These fees are deducted from the investment amount and can vary depending on the policy and the investment funds chosen. Therefore, investors should consider the impact of these fees on their investment returns before investing in structured ILPs.

Structured ILPs (Investment-Linked Policies) provide access to bulky investments. This means that investors can invest in a variety of assets such as stocks, bonds, and real estate through a single ILP. This allows investors to diversify their portfolio and potentially earn higher returns. Additionally, structured ILPs often have lower investment risk compared to investing directly in individual assets. They are not necessarily highly liquid assets or simple products to understand.

The requirement that must be met in preparing the Product Highlights Sheet is that the text should be a font size of at least 10-point Times New Roman.

Structured ILPs have to comply with various requirements, regulations, guidelines, and codes set out under the Financial Advisers Act (Cap 110), Insurance Act (Cap 142), and Code on Collective Investment Scheme. This means that structured ILPs must adhere to the rules and guidelines outlined in all three of these acts and codes.

The annual policy statement to policy owners should include the number and value of units deducted during the statement period. This information is important for policy owners to understand the deductions made from their policy and how it affects the value of their units. It provides transparency and clarity regarding the deductions and helps policy owners make informed decisions about their investment.

Soft dollars refer to the practice of using client commission dollars to pay for research and advisory services provided by brokers. This means that instead of paying for these services directly, the client's commission fees are used to cover these costs. Therefore, the option "Research and advisory services from broker" is an example of soft dollars. The other options, such as bid-offer spread, net asset value of investment, and commission payable for the sale of structured ILP, do not involve the use of client commission dollars for services.

The combination of a synthetic bond and a derivative has the highest risk because both synthetic bonds and derivatives are complex financial instruments that can involve leverage and speculative strategies. Synthetic bonds are created through the use of derivatives and can expose investors to significant credit, liquidity, and market risks. Derivatives, on the other hand, derive their value from an underlying asset and can amplify both gains and losses. Therefore, the combination of these two instruments has the highest risk compared to the other options.

An investor of a structured ILP should be least concerned about the technicalities and mechanics of how the investment works. This is because the investor's main concerns should be the payoff under the worst case scenario, the risk nature of the product, and the expected returns of the product. Understanding the technicalities and mechanics of the investment may be important for making informed decisions, but it is not the investor's primary concern.

The correct answer is "Death benefit is more than the single premium invested." This means that the amount paid out as a death benefit in a Structure ILP is greater than the initial premium invested.

The "Statement to Policy Owners" provides information on the number and value of units held at the end of the previous statement period. This information is important for policy owners to track the performance and value of their investments in the policy. It allows them to assess the growth or decline in the value of their units and make informed decisions about their policy.

Using securities with negative correlation can help reduce market risks because when one security is performing poorly, the other security is likely to perform well. This creates a balance in the portfolio and helps to offset potential losses.

The Product Highlights Sheet should include information about the key risks of the investments, the frequency of valuations, and the fees and charges payable. However, disclaimers should not be included in the sheet. Disclaimers are typically separate documents that provide legal protection for the issuer and may contain important information regarding the limitations or risks associated with the product.

The investment experience of an investment fund of participating policies is 'smoothed' in order to maintain a degree of certainty and stability in the non-guaranteed benefits to policy owners. This means that the fund aims to minimize fluctuations in returns and provide a consistent level of benefits to policy owners, even if the investment performance of the fund is not as high as expected. This approach helps to reduce the risk and uncertainty for policy owners and ensures that they can rely on a certain level of benefits from their investment.

The correct answer is Stability. The smoothing process aims to maintain stability in the non-guaranteed benefits of a policy. This means that policy owners may not receive the full upside or downside of the investment return on their money. Smoothing helps to even out fluctuations in returns and provides a more stable and predictable outcome for policy owners.

Structured Investment-linked Life Insurance policies (ILPs) do not typically offer death benefits on top of investment gains. They are long-term investment instruments that combine life insurance coverage with investment options. They are not designed to be short-term investments and usually have a longer investment horizon. They may have higher fees compared to normal unit trusts due to the additional insurance coverage provided. Early redemption of ILPs may result in a capital loss due to fees and charges, but this does not imply that they are offered as short-term investment instruments.

In a single premium structured investment linked life insurance policy, the death benefit is greater than the single premium. This means that if the insured person were to pass away, the beneficiary would receive a benefit amount that is higher than the initial premium paid for the policy.

Investors typically invest in structured products because they offer them the opportunity to have a tailor-made product that suits their specific investment needs. Additionally, structured products provide investors with access to exotic asset classes, which can potentially offer higher returns. They also allow investors to have direct access to restricted markets, which may not be available through traditional investment options. However, structured products are often complex and may not be easy to understand, making the statement that they provide investors with a financial product that is easy to understand least likely to be a reason for investing in structured products.

Foreign exchange risks can be transferred away using swaps. Swaps are financial agreements between two parties to exchange cash flows based on different variables, such as interest rates or foreign exchange rates. In the case of foreign exchange risks, a currency swap can be used to exchange one currency for another at a predetermined exchange rate, thus mitigating the risk of fluctuations in exchange rates. This allows companies or individuals to transfer their foreign exchange risks to another party, reducing their exposure to potential losses.

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Investing in a structured ILP may have several disadvantages, such as incurring multiple layers of fees and charges, losing investment control, and experiencing opportunity cost. However, one disadvantage that is not mentioned is inaccessibility to bulky investments. This means that investing in a structured ILP does not limit or restrict the investor from making large investments.

The investment restrictions imposed by the Code on CIS include liquidity risk, concentration risk, and credit risk. However, guarantee capital risk is not included as one of the investment restrictions.

The given statement describes an ILP (Investment-Linked Policy) that seeks daily investment results corresponding to twice the inverse of the daily performance of the NASDAQ-100 index. This means that the ILP is linked to the returns of the index, specifically aiming to provide inverse returns that are twice the daily performance of the index. This indicates that the ILP's performance is directly tied to the performance of the NASDAQ-100 index, making it an ILP linked to index returns.

The turnover ratio is a measure of how frequently a fund buys and sells its assets. It represents the number of times that a dollar of assets is reinvested in a given year. This ratio is used to assess the level of trading activity within a fund and can indicate the potential tax implications and transaction costs associated with the fund.

Initial sales charges and redemption fees are not included in the expense ratio of a sub-fund. The expense ratio is a measure of the total annual operating expenses of a fund, expressed as a percentage of its net assets. It includes costs such as custodial expenses, investment management fees, auditing fees, and legal fees. However, initial sales charges and redemption fees are transactional costs that are paid by investors when buying or selling shares of the fund, and they are not considered part of the ongoing operating expenses of the fund.

The Semi-Annual Report or Relevant Audit Report may exclude the reporting of poor performing funds. This means that the report may choose not to include information about funds that are not performing well. However, the report must still include information about newly launched funds, funds that are going to be terminated, and funds reaching maturity soon.

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Derivatives are financial instruments that derive their value from an underlying asset, such as an index. They can be used to track the opposite performance of an index by taking positions that move in the opposite direction of the index. This allows investors to profit from a decline in the index's value. Bonds, futures, and other derivatives can also be used for various investment purposes, but they do not specifically track the opposite performance of an index.

Structured Investment-linked Life Insurance policies must comply with the Insurance Act. The Insurance Act is a regulatory instrument that sets out the rules and regulations for insurance companies and policies in a particular jurisdiction. It ensures that insurance policies are fair, transparent, and provide adequate protection to policyholders. Compliance with the Insurance Act is essential for insurance companies offering structured Investment-linked Life Insurance policies to operate legally and ethically. The Companies Financial Act and Deposit Insurance Scheme are not specifically related to structured Investment-linked Life Insurance policies, so they do not need to comply with these regulations.

The correct answer is "Bond + Derivative + Insurance" because the structured ILP includes a bond component, as indicated by the maturity benefit being equal to 100% of the initial investment. It also includes a derivative component, as indicated by the maturity payout being dependent on the performance of three listed stocks. Finally, it includes an insurance component, as indicated by the death benefit being 102% of the initial investment.

When switching of ILP sub-funds is allowed free of charge, the switch is done on an offer-to-offer basis. This means that the switch is based on the prevailing offer prices of the sub-funds. The investor can switch from one sub-fund to another at the offer price of the new sub-fund. This allows the investor to switch without incurring any additional costs or fees.

One of the drawbacks of structured ILPs is that there is an element of opportunity costs. This means that when there are non-performing assets in the portfolio, it reduces the gains from those that are performing well. In other words, the presence of underperforming assets in the portfolio can negatively impact the overall returns.

The potential accumulation policy value is not found in the Product Summary. The Product Summary provides information on the ILP sub-funds available for investment, risk information, and the return on the ILP sub-fund over the last 1, 3, 5, and 10 years since inception. However, it does not include information on the potential accumulation policy value.