CIFC Mutual Fund Sales and Distribution Flashcards

What is a deferred sales charge (DSC) in the context of mutual fund sales?

Answer: A declining redemption fee charged to the investor if units are sold within a set period

A DSC (back-end load) is a fee paid by the investor upon redemption, which decreases over a set schedule until it reaches zero if units are held long enough.

What is a trailer fee (trailing commission) in mutual fund distribution?

Answer: An ongoing annual fee paid by the fund company to the advisor for servicing the client

A trailer fee is an annual service commission paid by the fund company to the dealer/advisor as long as the client holds the fund, compensating for ongoing service.

Under CIFC principles, what does 'no-load' mean when describing a mutual fund?

Answer: There is no sales commission charged to the investor at purchase or redemption

A no-load fund does not charge a front-end or back-end sales commission, meaning the full investment amount goes directly into the fund.

Which distribution channel sells mutual funds exclusively through licensed advisors at a dealer firm?

Answer: Advisor channel (full-service dealer)

The advisor channel (also called full-service dealer channel) distributes funds through licensed mutual fund advisors who provide personalized recommendations.

A client invests $10,000 in a front-end load fund with a 3% sales charge. How much is actually invested in the fund?

Answer: $9,700

With a 3% front-end load, the sales charge of $300 is deducted from the $10,000 investment, leaving $9,700 actually invested in the fund.

What is the primary advantage of dollar-cost averaging as a mutual fund purchase strategy?

Answer: It reduces the average cost per unit by buying more units when prices are low

Dollar-cost averaging involves investing fixed amounts at regular intervals, automatically purchasing more units when prices drop and fewer when prices rise, lowering the average cost.