CFS CFS Mutual Funds & ETFs 3

Question 1

What is a 'fund of funds'?

Accepted Answer

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

Answer

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.

Question 2

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

Accepted Answer

1.00%

Answer

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%.

Question 3

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

Accepted Answer

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

Answer

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

Question 4

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

Accepted Answer

The SEC (Securities and Exchange Commission)

Answer

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

Question 5

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

Accepted Answer

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

Answer

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.

CFS - Certified Fund Specialist Practice Test

CFS - Certified Fund Specialist Practice Test

CFS CFS Mutual Funds & ETFs 3