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CFS Mutual Funds & ETFs Flashcards

6 cards from real CFS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 CFS Mutual Funds & ETFs flashcards as text

  1. What is a 'fund of funds'?

    Answer: A mutual fund that invests in shares of other mutual funds or ETFs

    A fund of funds is a pooled investment that allocates capital to other funds rather than directly to individual securities, providing an extra layer of diversification.

  2. Under SEC regulations, what is the maximum allowable 12b-1 fee as a percentage of average net assets annually?

    Answer: 1.00%

    The SEC limits 12b-1 fees to a maximum of 1.00% of average net assets per year, with the service (trail) component capped at 0.25%.

  3. What is a 'target-date fund' and how does its investment strategy work?

    Answer: A fund that gradually shifts from aggressive to conservative allocations as the target retirement date approaches

    Target-date funds automatically rebalance their asset mix—becoming more conservative over time—along a 'glide path' toward the target retirement year.

  4. Which regulatory body requires mutual funds to provide investors with a prospectus before or at the time of investment?

    Answer: The SEC (Securities and Exchange Commission)

    The SEC requires mutual funds to file and provide investors with a prospectus disclosing the fund's investment objectives, risks, fees, and financial statements.

  5. What distinguishes an 'inverse ETF' from a traditional ETF?

    Answer: An inverse ETF is designed to return the opposite of its benchmark index's daily performance

    Inverse ETFs use derivatives to deliver returns opposite to their benchmark (e.g., if the index falls 1%, the inverse ETF aims to rise 1%), allowing investors to profit from declining markets.

  6. What is 'dollar-cost averaging' and what benefit does it provide to mutual fund investors?

    Answer: Investing a fixed dollar amount at regular intervals, reducing the average cost per share over time

    Dollar-cost averaging involves investing a fixed amount regularly regardless of price, resulting in buying more shares when prices are low and fewer when high, lowering average cost.