CMFAS M8 Types of CIS & Fund Structures question: VCC redeem shares at NAV freely

CMFAS M8Types of CIS & Fund Structures

Why can a VCC redeem shares at NAV freely, whereas an ordinary company generally cannot return capital so easily?

A It is legally a trust, so capital rules for companies do not apply to its units
B It must be listed on SGX, and it buys back shares on the exchange instead of redeeming them
C Its variable capital always equals net assets, so ordinary capital-maintenance rules do not bind it
D Its capital is fixed at incorporation, so redemptions must be paid out of profits rather than capital

Show the answer and explanation

Answer: C. Its variable capital always equals net assets, so ordinary capital-maintenance rules do not bind it

A VCC's defining feature is variable capital: its capital always equals net assets, so shares can be issued and redeemed at NAV without the capital-maintenance restrictions that constrain an ordinary fixed-capital company.

Common mistake

Explaining VCC redeemability by listing or a guarantee rather than variable capital.

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CMFAS M8 Types of CIS & Fund Structures question: VCC redeem shares at NAV freely

Answer: C. Its variable capital always equals net assets, so ordinary capital-maintenance rules do not bind it

Common mistake

Related CMFAS M8 questions

CMFAS M8 Types of CIS & Fund Structures question: VCC redeem shares at NAV freely

Answer: C. Its variable capital always equals net assets, so ordinary capital-maintenance rules do not bind it

Common mistake

Related CMFAS M8 questions