Free CISI Intro Practice Questions: Investment Funds

Use this focused CISI Intro page as a short practice test for Investment Funds. The items are original Finance Prep sample exam questions built for scenario-based practice, not trivia, puzzle questions, official CISI questions, copied live-exam content, or exam dumps.

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Sample questions

These are original Finance Prep practice questions aligned to this topic area. They are not official CISI questions, copied live-exam content, or exam dumps. Use them to preview question style and explanation depth before continuing with topic drills, mixed sets, and timed mock exams in Finance Prep.

Question 1

Topic: Investment Funds

A trainee is comparing a UK authorised unit trust with an OEIC. The decisive point is the usual pricing method used when retail investors buy from, or sell back to, the fund provider. Which statement best describes the difference?

• A. A unit trust and an OEIC are both priced mainly by supply and demand in the secondary market.
• B. A unit trust may quote separate offer and bid prices for units, while an OEIC normally uses a single share price based on net asset value.
• C. A unit trust is traded on a stock exchange at a market price, while an OEIC is always dealt directly with HMRC.
• D. A unit trust uses a single share price, while an OEIC must quote separate bid and offer prices for its units.

Best answer: B

What this tests: Investment Funds

Explanation: Unit trusts and OEICs are both open-ended collective investments, so investor purchases and sales normally take place through the fund manager or platform rather than through ordinary stock exchange trading. Their prices are linked to the value of the underlying portfolio. A key foundation-level difference is the usual pricing style: a unit trust may use separate bid and offer prices, meaning investors buy at the offer price and sell at the bid price. An OEIC normally has a single share price based on net asset value, with any initial charge shown separately.

• Stock exchange pricing at a premium or discount is more associated with closed-ended investment companies, not the usual dealing route for these open-ended funds.
• Reversing the pricing descriptions confuses OEIC shares with unit trust units.
• Secondary-market supply and demand is not the main pricing basis for unit trusts or OEICs because they are open-ended and NAV-based.

Unit trusts are commonly associated with bid and offer prices, whereas OEICs normally deal at a single NAV-based share price with charges shown separately.

Question 2

Topic: Investment Funds

A UK OEIC has a valuation point at 12 noon. An investor submits a buy order at 10:30 am and will receive units at the price calculated at 12 noon, even though that price is not yet known. Which dealing concept does this describe?

• A. Dual pricing
• B. Historic pricing
• C. Settlement date
• D. Forward pricing

Best answer: D

What this tests: Investment Funds

Explanation: Forward pricing means fund orders are dealt at the next available price calculated after the order is accepted, usually at the next valuation point and subject to the cut-off time. In this case, the investor places the order at 10:30 am and the OEIC values at 12 noon, so the trade is executed at the 12 noon price even though that price was unknown when the order was submitted. Historic pricing would use a previously calculated price instead. Dual pricing refers to separate buying and selling prices, not the timing of when the price becomes known. Settlement date is about when cash and units are exchanged after the trade. The key clue is that the price is set after the order is placed.

• Historic pricing: This would use a price already struck in the past, so it does not fit an order dealt at the next noon valuation.
• Dual pricing: This concerns separate buy and sell prices, not whether the investor knows the price at the moment of dealing.
• Settlement date: This is the date when money and units are exchanged, which happens after pricing has already been determined.

The order is placed before the valuation point and receives the next price calculated, which is the defining feature of forward pricing.

Question 3

Topic: Investment Funds

An investor places a buy order in a UK unit trust. The order is accepted before the fund’s valuation point, so the deal date is Tuesday 9 July.

T+4 means four business days after the deal date, excluding the deal date. There are no bank holidays. Which outcome correctly reflects the settlement?

• A. 800 units are bought, payment is due on Monday 15 July, and the holding is confirmed through the manager or registrar’s records.
• B. 800 units are bought, payment is due on Monday 15 July, and the holding is confirmed only by exchange settlement in CREST.
• C. 5,000 units are bought, payment is due on Monday 15 July, and the holding is confirmed through the manager or registrar’s records.
• D. 800 units are bought, payment is due on Friday 12 July, and the holding is confirmed through the manager or registrar’s records.

Best answer: A

What this tests: Investment Funds

Explanation: For a unit trust purchase, the number of units is calculated by dividing the amount invested by the dealing price. A price of 250p is £2.50, so £2,000 buys 800 units. Settlement on a T+4 business-day basis starts counting after the deal date: Wednesday is day 1, Thursday day 2, Friday day 3, and Monday 15 July day 4. Open-ended collective fund holdings are normally recorded by the fund manager or registrar and confirmed to the investor through dealing and holding documentation, rather than being confirmed only through stock exchange settlement.

• Friday 12 July counts the deal date as part of the T+4 period, but T is excluded when counting the four business days.
• 5,000 units results from multiplying by the price instead of dividing the amount invested by the unit price.
• CREST-style exchange settlement is not the normal ownership confirmation route for an open-ended unit trust holding.

£2,000 divided by 250p (£2.50) gives 800 units, and T+4 from Tuesday falls on Monday 15 July.

Question 4

Topic: Investment Funds

A trainee adviser tells a client that an OEIC uses separation of duties to help protect investors. The client asks who runs the fund and who independently checks that the scheme property is properly safeguarded. Which response is most accurate?

• A. The ACD manages the OEIC; the depositary safeguards assets and oversees the ACD.
• B. The depositary manages the OEIC; the ACD safeguards assets and oversees compliance.
• C. The ACD alone runs and controls the OEIC; a depositary is not part of the structure.
• D. The ACD and depositary are interchangeable administrators of the same functions.

Best answer: A

What this tests: Investment Funds

Explanation: An OEIC is designed so that day-to-day operation and independent oversight are separated. The authorised corporate director, or ACD, is responsible for managing and operating the fund, including administration and dealing functions. The depositary is a separate entity whose role is to protect investors by holding or overseeing the safekeeping of scheme property and monitoring whether the ACD is acting in line with the fund rules and regulation.

That separation matters because the body running the fund is not the same body independently checking assets and control processes. The closest trap is the swapped-role answer, because it recognises both parties but assigns their responsibilities the wrong way round.

• Swapped roles: The depositary does not run the OEIC’s daily management; that is the ACD’s role.
• Duplicate-role idea: The two roles are deliberately separate, not interchangeable, because investor protection depends on independent oversight.
• Missing depositary: An OEIC does include a depositary, so saying the ACD alone controls the structure ignores a core safeguard.

In an OEIC, the ACD operates the fund while the independent depositary safekeeps scheme property and monitors the ACD.

Question 5

Topic: Investment Funds

Amira has £3,000 to invest. She wants exposure to a broad spread of UK shares, does not want to select individual companies herself, and understands that she may need to sell within a normal dealing cycle. Which option best applies the principles of collective investment to her situation?

• A. Buying one large FTSE 100 share would give similar diversification with lower overall risk.
• B. A property fund is best because collective investments always offer immediate liquidity at a known value.
• C. A collective fund would remove the chance of capital loss because it holds many investments.
• D. A UK equity OEIC could help by providing diversification and professional management, but charges and market risk still remain.

Best answer: D

What this tests: Investment Funds

Explanation: The core principle is that collective investments can be useful for smaller investors who want broad market exposure and do not want to choose securities themselves. In Amira’s case, a UK equity OEIC fits because it spreads her money across many shares and uses a professional manager to make investment decisions. That said, collective funds are not risk-free: if the UK equity market falls, the fund value can fall too, and ongoing charges can reduce net returns. Liquidity is usually available through normal dealing arrangements in many mainstream funds, but it is not correct to assume every collective investment can always be sold immediately at a certain price.

So the best application is the option that combines diversification and professional management with the limits of cost and market risk.

• Single share misconception: One company share, even a large FTSE 100 name, does not provide the same diversification as a pooled fund holding many stocks.
• Diversification overclaim: Spreading investments can reduce company-specific risk, but it does not eliminate the possibility of capital loss.
• Liquidity overstatement: Some collective investments can face liquidity limits, so it is wrong to say they always offer immediate sale at a known value.

This best matches her needs for broad exposure and delegated investment decisions without implying that costs or capital risk disappear.

Question 6

Topic: Investment Funds

An investor compares two listed investment trusts. Each trust has a published net asset value (NAV) per share and a current stock market price per share.

Which statement best describes their pricing relative to NAV?

• A. Both trusts are trading at a discount.
• B. Northgate Trust is trading at a premium, while Southmere Trust is trading at a discount.
• C. Northgate Trust is trading at a discount, while Southmere Trust is trading at a premium.
• D. Both trusts are trading at a premium.

Best answer: C

What this tests: Investment Funds

Explanation: For an investment trust, the NAV per share represents the value of the trust’s underlying assets attributable to each share. Because investment trusts are closed-ended and their shares trade on the stock market, the share price can differ from NAV. If the market price is lower than NAV, the trust is trading at a discount. If the market price is higher than NAV, it is trading at a premium. Northgate’s price of 108p is below its NAV of 120p, so it is at a discount. Southmere’s price of 132p is above its NAV of 120p, so it is at a premium.

• Reversing the labels confuses the direction of the comparison: below NAV is not a premium.
• Treating both trusts as discounted ignores that Southmere’s market price is above its NAV.
• Treating both trusts as premium-rated ignores that Northgate’s market price is below its NAV.

A market price below NAV is a discount, and a market price above NAV is a premium.

Question 7

Topic: Investment Funds

A platform lists two ETFs that both aim to track the FTSE 100. Fund P says it tracks the index by holding the underlying shares directly or by sampling them. Fund S says it tracks the index return through a swap agreement with an investment bank, supported by collateral. Which statement best describes the main difference?

• A. Fund S is lower risk in all respects because it does not need to buy the FTSE 100 shares directly.
• B. Fund P and Fund S are both non-synthetic because they track the same index; the only difference is the annual charge.
• C. Fund P is non-synthetic because it obtains exposure by owning shares; Fund S is synthetic because it obtains exposure through a swap and introduces counterparty and collateral risk.
• D. Fund P is synthetic because it trades on an exchange; Fund S is non-synthetic because collateral removes derivative risk.

Best answer: C

What this tests: Investment Funds

Explanation: A non-synthetic, or physical, ETF gets its index exposure by holding the underlying securities, either fully or through a representative sample. A synthetic ETF gets the desired return using a derivative arrangement, commonly a swap with an investment bank. The swap can make tracking efficient, especially for harder-to-access markets, but it introduces risks that are not the same as direct physical holding. The main added concern is counterparty risk: the swap provider may fail to meet its obligations. Collateral is intended to reduce this risk, but it does not make it disappear and may bring its own valuation, liquidity, or custody concerns.

• Exchange trading does not make an ETF synthetic; the replication method is the key distinction.
• Tracking the same index does not mean the funds obtain exposure in the same way.
• Not buying the shares directly can reduce some operational issues, but it does not make the synthetic structure lower risk in all respects.

Physical ownership points to non-synthetic replication, while swap-based exposure points to synthetic replication and adds reliance on the swap counterparty and collateral arrangements.

Question 8

Topic: Investment Funds

A trainee is comparing two fund summaries on a UK investment platform.

Which conclusion is best supported by the information shown?

• A. Oak is closed-ended because its price is based on the NAV calculated once daily.
• B. River is open-ended because investors can buy and sell its shares on the London Stock Exchange.
• C. Oak is open-ended, while River is closed-ended and is trading at a discount to NAV.
• D. River is trading at a premium to NAV because its quoted market price is below 500p.

Best answer: C

What this tests: Investment Funds

Explanation: Open-ended funds, such as OEICs and unit trusts, expand or contract as the fund manager creates or cancels units or shares in response to investor demand. Their dealing price is normally based on the fund’s net asset value. Closed-ended funds, such as investment trusts, have a fixed amount of share capital and their shares trade on a secondary market. Because the market price is set by supply and demand, it can differ from NAV. Here, River’s quoted price of 470p is below its NAV of 500p, so it is trading at a discount. Oak’s structure and NAV-based pricing indicate an open-ended fund.

• Daily NAV-based pricing supports an open-ended structure; it does not make Oak closed-ended.
• Exchange trading points to a secondary-market closed-ended structure, not an open-ended fund.
• A quoted price below NAV is a discount, not a premium.

Oak has creation and cancellation of shares at NAV, while River has fixed share capital and a market price below its NAV.

Question 9

Topic: Investment Funds

A UK fund is described in its factsheet as an OEIC structured as an ICVC. The fund deals at a single price based on net asset value.

Ignoring charges and pricing adjustments, which statement correctly identifies the fund structure and the shares in issue after dealing?

• A. It is a unit trust with a fixed number of units, leaving 2,000,000 units in issue.
• B. It is a corporate open-ended fund with variable share capital, leaving 2,060,000 shares in issue.
• C. It is a corporate open-ended fund with variable share capital, leaving 2,140,000 shares in issue.
• D. It is a closed-ended investment company, leaving 1,860,000 shares in issue.

Best answer: B

What this tests: Investment Funds

Explanation: An OEIC is an open-ended investment company, legally structured as an investment company with variable capital (ICVC) in the UK. Investors hold shares in the company, not units in a trust. Because it is open-ended, the fund can create shares for new subscriptions and cancel shares when investors redeem. Here, the new subscription buys 100,000 shares (£150,000 ÷ £1.50). After adding those shares and cancelling the 40,000 redeemed shares, the fund has 2,060,000 shares in issue.

• Treating the vehicle as a unit trust is incorrect because the factsheet identifies an OEIC structured as an ICVC, so investors hold shares.
• Treating it as closed-ended is incorrect because an OEIC has variable capital and can issue or cancel shares through dealing.
• Adding both subscriptions and redemptions gives the wrong share count; redemptions reduce shares in issue.

An OEIC or ICVC is a corporate open-ended vehicle that creates and cancels shares, so £150,000 at £1.50 creates 100,000 shares and 40,000 are redeemed.

Question 10

Topic: Investment Funds

A UK retail client wants an authorised retail fund that can invest directly in commercial property as well as other eligible assets. The client accepts that dealing may be less frequent than for a mainstream securities fund because the underlying assets can be illiquid. Which fund type is the single best fit?

• A. A private equity fund
• B. A NURS property fund
• C. An exchange-traded fund
• D. A UCITS equity fund

Best answer: B

What this tests: Investment Funds

Explanation: A non-UCITS retail scheme (NURS) is an authorised fund available to retail investors but with broader investment powers than a UCITS. This makes it suitable for assets such as direct commercial property, where valuation and dealing may be less straightforward because buildings cannot be sold as quickly as listed shares or bonds. A UCITS fund is generally associated with more liquid transferable securities and tighter diversification and liquidity rules. An ETF is exchange traded and often tracks an index, while private equity funds focus on unquoted companies and are typically less suitable for ordinary retail liquidity needs.

• A UCITS equity fund does not best match direct commercial property and less frequent dealing.
• An exchange-traded fund is mainly identified by exchange trading and index exposure, not direct property ownership.
• A private equity fund targets unquoted businesses, not authorised retail direct property exposure.

A NURS can have wider investment powers than a UCITS and is commonly used for authorised retail funds investing in less liquid assets such as direct property.

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