M6A — CM-SIP: Specified Investment Products (Derivatives and CIS)
Structured Funds
Chapter 9 is the 'collective investment schemes' part of CM-SIP: funds that use bonds and derivatives to deliver a formula payoff. It covers capital guaranteed funds under the MAS Code on CIS, option-based and CPPI protection, synthetic ETFs, leveraged and inverse products, the Code's derivative exposure limits, and the risks that remain inside a fund wrapper. Expect naming-rule and guarantor questions, CPPI arithmetic and daily-reset compounding.
6 sections·~3 min read
✓Checked against the IBF CMFAS CM-SIP syllabus chapter 9; MAS Code on Collective Investment Schemes last revised 2 Jul 2026 (chapter 4.1(d) and 4.2, Appendix 1, Appendix 3, Appendix 4); MoneySense 'Guide to ETFs: how synthetic ETFs work'; SGX listing page for the Phillip MSCI Singapore Daily 2X Leveraged and -1X Inverse Products; checked 13 Sep 2026. Unofficial prep, not endorsed by MAS or IBF.
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Must-know for the exam
✓Code on CIS ch 4.1(d): 'capital protected' and 'principal protected' are prohibited in a scheme's name and description.
✓Appendix 4: only complying capital guaranteed funds may use 'guarantee', 'assured', 'insured' or 'warranty'. Relying solely or largely on investments to meet a promised return of capital is not a guarantee.
✓Eligible guarantor: financial institution rated at least AA/Aa; other guarantors AAA/Aaa. Downgrade still at A or above: no action. Below A or unrated: new guarantor within six months (or sooner), unless participants pass an extraordinary resolution.
✓Guarantee: written, unconditional, first-demand, enforceable in Singapore; not less than 100% of capital (capital less front-end loads, or on specific dates only, with prominent disclosure). Notify participants at least 30 days before a guarantee date.
✓At maturity, units are redeemed at the higher of the guaranteed amount and NAV. The guarantor must not issue securities making up more than 10% of NAV.
✓Appendix 1: global exposure to financial derivatives not more than 100% of NAV (Commitment Approach, or VaR after consulting MAS). Single entity limit 10%; group limit 20% including OTC counterparty exposure. OTC valuations must not rely solely on the counterparty.
✓CPPI: risky exposure = multiplier x (portfolio value - floor). Value 100, floor 80, multiplier 3: risky 60. Risky -10%: value 94, new risky 42. Risks: cash lock and gap risk.
✓Synthetic ETFs (MoneySense): unfunded swap (holds a basket, swaps its return for the index) or funded swap (passes cash to the counterparty, which posts collateral). Counterparty exposure usually limited to 10% of NAV.
✓SGX L&I products (Phillip MSCI Singapore Daily 2X and -1X) track daily multiples using SGX MSCI Singapore index futures; compounding makes multi-day returns drift.
Why this matters in the exam
•A fund wrapper feels safer than a note, and a 'guaranteed' label feels safer still. Examiners test what the label legally requires, who actually stands behind the promise, and what the investor gets if they leave early.
Capital guaranteed funds under the Code on CIS
•Naming: 'capital protected' and 'principal protected' are banned outright. Guarantee words are allowed only for funds complying with Appendix 4.
•Guarantor ratings: AA/Aa for financial institutions, AAA/Aaa for others. A fall to A is tolerated; below A triggers replacement within six months.
•Coverage: at least 100% of capital, with disclosed exceptions (less front-end loads, specific dates). Example from the Code: $30m raised, 3% loads, guarantee of at least $29.1m.
•Partial guarantee (for example 90%): state the percentage prominently and keep guarantee words out of the fund's name.
•Non-compliant guarantee: every communication must say prominently that it is not a capital guaranteed fund.
•Worked example: guaranteed $1.00 per unit. NAV at maturity $1.18: pay $1.18. NAV $0.93: pay $1.00, the guarantor covering $0.07.
•Trap: the guarantee usually applies only at maturity or on stated dates. Redeem early and you get NAV, which may be below capital.
CMFASPrep