CFS Mutual Funds & ETFs Flashcards

What is the primary difference between an open-end mutual fund and a closed-end fund?

Answer: Open-end funds issue new shares on demand; closed-end funds have a fixed share count traded on exchanges

Open-end funds continuously issue and redeem shares at NAV, while closed-end funds issue a fixed number of shares that trade on stock exchanges at market prices.

The Net Asset Value (NAV) of a mutual fund is calculated as:

Answer: (Total assets minus total liabilities) divided by total shares outstanding

NAV equals the fund's total assets minus its liabilities, divided by the number of outstanding shares, calculated at the close of each trading day.

Which share class of a mutual fund typically charges a front-end sales load at the time of purchase?

Answer: Class A shares

Class A shares charge an upfront sales load (typically 3–5.75%) deducted from the initial investment, but usually have lower ongoing expenses.

What is a 12b-1 fee in a mutual fund?

Answer: An annual fee charged to fund assets for marketing and distribution expenses

The 12b-1 fee, named after the SEC rule that permits it, is an annual charge (up to 1%) deducted from fund assets to cover distribution and marketing costs.

An ETF differs from a traditional mutual fund primarily in that ETFs:

Answer: Trade on stock exchanges throughout the day at market prices

ETFs trade on exchanges throughout the trading day like stocks, with prices fluctuating based on supply and demand, unlike mutual funds priced once at day's end.

Which type of mutual fund seeks to replicate the performance of a specific market index?

Answer: Index fund

Index funds passively track a benchmark index like the S&P 500 by holding the same securities in the same proportions as the index.