Financial Reporting & Analysis

Questions: 1. Briefly discuss the key characteristics of the following investment schemes:i. Live Fundsii. Pension Fundsiii. Investment Trustsiv. OEICsv. Unit Trustsvi. SICAVs2. Explain the settlement method of investor transactions by Authorised Fund Managers (AFMs) including the alternative settlement method. Answers: 1. i) Life Fund It comprises of stock, bonds, cash, and various other alternatives where the life assurance premiums are paid, and claims are settled. Insurers, as well as pension providers, purchase it. This is a good strategy to mitigate the risk and keep building the funds. The risk can be averaged and a corpus can be made of high quality stocks, bonds, and cash. (Horngren, 2013). This helps in contingent activities and support to the insurer.ii. Pension funds it is a fund formed by the employer that helps in the management of the investment of the employees funds that pertains to retirement. This helps the employee during the time of retirement and enables proper management (Horngren, 2013). This is one of the strategy and popular activity that helps the employees during the time of retirement. Money can be deposited in the pension fund account by the employee and the employee and can be withdrawn at the end of the serving period. iii. Investment trust- It is a type of collective investment and are closed ended funds. It can issue only fixed a number of shares. It holds securities of other firms. It cannot be bought and sold under the normal scenario like stocks and bonds. Hence, the liquidity factor is less in this case and collective investment tool. iv. OEICs It is an innovative way to invest in the stock market. Here the pooling of money happens with other investors. It caters to different risk behaviour and hence, diversification and operation are easier. The money is pooled and hence, invested in a strong manner that is guided by the fund manager (Horngren, 2013).The fund manager invests in different segment and since, the investment is huge it is diversified and the return is huge in this case. It is a popular means of investment and beating the risk in the market. It is similar to mutual funds that diversify the investments. v. Unit trust - It is a type of collective investment framed under a trust deed. They are open-ended in nature and, therefore, the units can increase or decrease depending upon the net sales. This implies it can be bought and sold thereby an increase or a decrease in the investment can happen at any point of time. The major highlight is the faming of the trust deed that helps in investment. vi. SICAVs It is an open-ended collective scheme. The investors that are participating in nature generate the value. The investors can extract his fund at any point in time. The value is generated by dividing fund investment by the outstanding shares (Brigs, 2013). It can be said one of the liquid components that is advantageous to the investor. It offers liquidity and helps in generating value that is a unique combination. 2. The Authorized Fund Manager undertakes the settlement mechanism. The AFM undertakes the request of the investors and then computes the value by dividing the investment with the shares that are outstanding (Brigs, 2013). When the investor puts his request, the fund manager does the computation. After the value is computed, the fund managers progress with the request. The units are multiplied, and the value is generated. The request of the investor is initiated, and the manager settles the accounts. The settlement of the account is done in partial or in full. Whenever, the investor is desirous of the money, then a request can be initiated that will help him to withdraw the funds. It is a good way to keep liquid funds in hand as it offers paramount liquidity. References Brigs, A 2013, Financial reporting analysis, Mason, Ohio: South-Western. Horngren, C 2013 Financial accounting, Frenchs Forest, N.S.W: Pearson Australia Group.