CMFAS RES5 Collective Investment Schemes Code question: a scheme's borrowing under the Code

CMFAS RES5Collective Investment Schemes Code

Which statement about a scheme's borrowing under the Code is INCORRECT?

A Borrowing is permitted only on a temporary basis, for meeting redemptions and bridging requirements
B The borrowing period should not exceed one month
C Aggregate borrowings should not exceed 10% of the scheme's NAV at the time the borrowing is incurred
D Cash may be offset against borrowings when measuring the borrowing percentage

Show the answer and explanation

Answer: D. Cash may be offset against borrowings when measuring the borrowing percentage

Credit balances (e.g. cash) may NOT be offset against borrowings when determining the percentage outstanding. Borrowing is temporary only (redemptions/bridging), from licensed banks/finance/merchant banks or equivalent, for no more than one month, and capped at 10% of NAV at the time incurred.

Common mistake

Borrowings are measured gross — cash cannot be netted off to appear under the 10% cap.

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A scheme may measure its global exposure to financial derivatives using the Commitment Approach or, subject to prior consultation with MAS, the A scheme's units were priced and dealt at $4.985 per unit, but the correct NAV per unit should have been $5.000. Which statement is correct under the 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?

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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.