A structured fund is a collective investment scheme engineered with bonds, options, swaps or embedded derivatives to deliver a formula-based payoff over a stated term. This chapter covers what sets it apart from structured notes and ordinary unit trusts, how it is built, who does what, and the MAS Code on Collective Investment Schemes rules that bound its derivative use: the 100% of NAV global exposure cap, the commitment and VaR approaches, counterparty and collateral limits, the Appendix 4 rules for capital guaranteed funds, and the disclosure and classification rules that decide how it may be sold. Expect calculation items on exposure, counterparty add-ons and guarantee amounts.
15 min read·8 sections
✓Checked against the SCI M8A syllabus chapter 4 (checked 13 Sep 2026); MAS Code on Collective Investment Schemes, last revised and effective 2 July 2026 (Appendix 1, Annex 1B, Appendices 4 and 5); Securities and Futures Act 2001 ss.2, 286, 287, 296, 296A, 309B, 309C, 321 (current version as at 13 Sep 2026); Securities and Futures (Capital Markets Products) Regulations 2018 Schedule; MAS Notice SFA 04-N12 (last updated 4 Jan 2019); Financial Advisers Act 2001 s.36. Unofficial prep, not endorsed by MAS or SCI.
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Must-know for the exam
✓A structured fund is a CIS: offered with a prospectus (SFA s.296) and a Product Highlights Sheet lodged with MAS (s.296A); authorised if constituted in Singapore (s.286), recognised if foreign (s.287).
✓Global exposure to derivatives and embedded derivatives must not exceed 100% of NAV at all times (Code on CIS App 1 para 3.1).
✓Commitment approach: convert each derivative to its equivalent underlying position at market value; net same-underlying positions even with different maturities; option exposure is delta-adjusted.
✓VaR approach needs prior consultation with MAS: relative VaR not more than 1.5x the reference portfolio; absolute VaR generally not more than 20% of NAV; 99% one-tailed, 20 business days, 250 business days of data, calculated daily.
✓Stress tests and back-tests at least monthly. Back-test zones over 250 days: green 0-4 exceptions, yellow 5-9, red 10 or more.
✓OTC counterparty limit: 10% of NAV for an eligible financial institution (minimum long-term rating A, or guaranteed by an A-rated entity); 5% otherwise. Measured as positive replacement cost plus add-on, not notional.
✓Add-on for total return swaps and credit default swaps is 10% regardless of term, applied to the notional or the underlying value, whichever is more conservative (App 1 para 5.5).
✓Single entity limit 10% of NAV; group limit 20% of NAV (securities, MMIs, deposits and OTC counterparty exposure to one group combined).
✓Eligible OTC collateral: cash, MMIs or bonds issued or guaranteed by an AAA government, agency or supranational; marked to market daily; top up by close of the next business day; non-cash collateral may not be reinvested.
✓Exchange-traded derivatives cleared by a CCP with daily margining are outside the OTC counterparty limits.
✓Capital guaranteed fund (App 4): guarantor rated at least AA (financial institution) or AAA (others); unconditional, first-demand guarantee enforceable in Singapore; not less than 100% of capital (less front-end loads, or date-specific, if prominently disclosed).
✓If the guarantor falls below A, a new eligible guarantor must be in place within six months. Participants get at least 30 days' notice before a guarantee date.
✓SFA s.309C bans 'capital protected' and 'principal protected' in the name, description or prospectus of any offered capital markets product.
✓Back-tested or simulated past performance is banned in the prospectus, reports and marketing (App 1 para 8.1).
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Traps that cost marks
→Candidates call every formula-linked product a structured note and miss that the wrapper decides the investor's legal position.
→Reversing the roles: it is the note, not the fund, that turns the investor into an issuer's creditor.
→Mixing up the 100% global exposure limit with the 10%/5% counterparty limits.
→Assuming a legal rule forces closure, when the reason is that the payoff is priced and hedged at launch.
→Forgetting the charge, or adding it instead of deducting it.
→Treating the structured fund as just another actively managed fund.
→Believing a fund that relies on swaps can concentrate unlimited exposure on one bank.
→Choosing the note because its payoff looks the same, ignoring whose balance sheet backs it.
Why this chapter matters
•Structured funds put derivatives inside a regulated fund wrapper. Examiners test whether you can tell that wrapper apart from a structured note or deposit, and whether you know the Code on CIS numbers that stop a fund from taking unlimited derivative, counterparty or guarantor risk.
•Most calculation items in this chapter are one or two steps: convert a derivative into exposure, add an add-on to a mark-to-market value, or deduct a front-end load from a guarantee. Learn the formula and the limit together.
•Takeaway: know the wrapper, know the limit, and show the arithmetic.
What a structured fund is, and how it differs
•A structured fund is a CIS whose return follows a pre-defined formula over a stated term, delivered through bonds plus options, swaps, or securities with embedded derivatives. Its assets are held by an approved trustee for unitholders.
•Structured fund: a CIS; trustee holds the assets; Code on CIS limits spread its holdings and cap exposure to any one counterparty; usually redeemable at NAV less charges on dealing days.
•Structured note: the issuer's own debt; the investor is an unsecured creditor; most are not principal-guaranteed and a holder can lose everything; exit usually depends on the issuer's bid.
•Structured deposit: a bank deposit with a market-linked return; principal repaid at maturity only if held to maturity and the bank is solvent; not insured by SDIC.
•Conventional active unit trust: return depends on the manager's discretion, not a formula.
Typical features: a fixed offer period, a stated investment term, a target or formula payoff at maturity, and an early redemption charge during the term. Before maturity you receive NAV, not the formula payoff.
•Example: 10,000 units redeemed at a NAV of S$0.94 with a 2% early redemption charge gives S$9,400 - S$188 = S$9,212.
•Trap: a 'target payout' is an aim, not a promise. The trustee safeguards assets; it does not fund shortfalls.
•Takeaway: same payoff, different wrapper, different risk. A fund spreads counterparty risk; a note concentrates it on one issuer.
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