CIFC CIFC Mutual Fund Sales and Distribution 1 — Questions and Answers
Question 1: What is a deferred sales charge (DSC) in the context of mutual fund sales?
- A fee charged to the fund company at purchase
- A declining redemption fee charged to the investor if units are sold within a set period (Correct answer)
- An annual trailer fee paid to the advisor
- A front-end load waived for large purchases
Correct 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.
Question 2: What is a trailer fee (trailing commission) in mutual fund distribution?
- A one-time fee at the time of fund purchase
- An ongoing annual fee paid by the fund company to the advisor for servicing the client (Correct answer)
- A penalty for switching between fund families
- A fee charged when a fund underperforms its benchmark
Correct 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.
Question 3: Under CIFC principles, what does 'no-load' mean when describing a mutual fund?
- The fund has no management fee
- There is no sales commission charged to the investor at purchase or redemption (Correct answer)
- The fund carries no risk
- There is no minimum investment required
Correct 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.
Question 4: Which distribution channel sells mutual funds exclusively through licensed advisors at a dealer firm?
- Direct channel
- Advisor channel (full-service dealer) (Correct answer)
- Discount brokerage channel
- Bank branch teller
Correct 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.
Question 5: A client invests $10,000 in a front-end load fund with a 3% sales charge. How much is actually invested in the fund?
- $10,300
- $9,700 (Correct answer)
- $10,000
- $9,970
Correct 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.
Question 6: What is the primary advantage of dollar-cost averaging as a mutual fund purchase strategy?
- It guarantees a profit regardless of market conditions
- It reduces the average cost per unit by buying more units when prices are low (Correct answer)
- It eliminates all investment risk
- It maximizes returns by timing market peaks
Correct 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.
CIFC CIFC Mutual Fund Sales and Distribution 1
What is a deferred sales charge (DSC) in the context of mutual fund sales?