CMFAS RES5 Collective Investment Schemes Code question: NAV in securities issued by a national government rated AA

CMFAS RES5Collective Investment Schemes Code

A bond fund invests 40% of its NAV in securities issued by a national government rated AA, so the 10% single-entity limit is removed. Within that exposure it places 25% of NAV into one particular bond issue and 15% across other issues of the same government. Is this permitted?

A No — even with the single-entity limit removed, no more than 20% of NAV may go into a single issue, so 25% breaches the Code
B Yes — once the issuer is rated AA there are no further limits on how the exposure is split across its issues
C No — a fund may never invest more than 35% of NAV in any one government, even one rated AA or better
D Yes — the 20% single-issue cap applies only to corporate issuers, not to government securities

Show the answer and explanation

Answer: A. No — even with the single-entity limit removed, no more than 20% of NAV may go into a single issue, so 25% breaches the Code

For a government/supranational rated at least AA the 10% single-entity limit is removed, but (except for fixed-maturity schemes) not more than 20% of NAV may be invested in any single issue by the same entity. Placing 25% of NAV in one issue breaches that sub-limit.

Common mistake

Removing the single-entity limit does not remove the 20%-per-single-issue sub-limit that still applies to the highly rated government exposure.

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Original study material mapped to the public CMFAS RES5 syllabus. Unofficial, not endorsed by MAS or SCI. Verify figures and rules against current guidance before relying on them.