Types of Investment Funds Flashcards

An investor purchases units in an open-end mutual fund. How is the purchase price determined?

Answer: At the fund's net asset value per unit (NAVPU) calculated at the end of the trading day

Open-end mutual fund units are bought and sold at the NAVPU calculated at the close of business on the day the order is received.

Which of the following best describes a target-date fund?

Answer: A fund that gradually shifts its asset allocation from growth-oriented to conservative as it approaches a target retirement date

Target-date funds automatically shift from equities toward bonds and cash equivalents as the target date (typically retirement) approaches.

What is the key difference between a T-SWP (tax-efficient systematic withdrawal plan) and a regular SWP?

Answer: A T-SWP returns a portion of capital with each payment, potentially reducing tax compared to fully income-based withdrawals

T-SWP (T-class funds) make monthly payments that consist largely of a return of capital, deferring tax compared to SWPs that distribute fully taxable income.

Which statement about real estate investment trusts (REITs) is CORRECT?

Answer: REITs pool investor capital to invest in income-producing real estate and are typically traded on stock exchanges

REITs allow retail investors to participate in income-producing real estate by purchasing units that trade on exchanges and distribute rental income.

A 'clone fund' in the Canadian mutual fund industry refers to:

Answer: A fund that duplicates another fund's portfolio exactly using derivatives to gain foreign exposure

Clone funds use derivatives such as forward contracts to replicate the performance of a foreign fund within a Canadian fund wrapper, historically used to work around foreign content limits.

Which type of mutual fund is MOST appropriate for an investor seeking monthly income with relatively low risk?

Answer: Dividend or income fund holding blue-chip dividend-paying stocks and bonds

Dividend or income funds focus on established companies paying regular dividends and high-quality bonds, making them suitable for income-seeking, lower-risk investors.

Under CIFC standards, a fund with a management expense ratio (MER) of 2.5% means:

Answer: The annual cost of running the fund is 2.5% of the fund's average net assets, charged to investors

The MER represents the total annual fees charged to the fund (management fees, operating expenses, taxes) expressed as a percentage of average net assets.