IFC - Investment Funds in Canada Mutual Fund Fees and Services Questions and Answers

Question 1

An investor is reviewing the Fund Facts document for a Canadian equity fund.
The document lists a Management Expense Ratio (MER) of 2.10% and a Trading Expense Ratio (TER) of 0.15%.
What is the total annual cost of owning the fund, as a percentage, that directly reduces the fund's return?

Accepted Answer

2.25%

Answer

2.10%

Answer

0.15%

Answer

1.95%

Question 2

A trailing commission, or trailer fee, is paid out of a mutual fund's management fee. What is the primary purpose of this fee?

Accepted Answer

To compensate the dealer and representative for ongoing service and advice to the investor.

Answer

To compensate the portfolio manager for successful stock selection.

Answer

To cover the fund's brokerage costs for buying and selling securities.

Answer

To pay for the fund's legal and audit expenses.

Question 3

An investor purchases a no-load mutual fund. Which of the following fees will they most likely avoid paying?

Accepted Answer

An initial sales charge

Answer

Management Expense Ratio (MER)

Answer

Short-term trading fees

Answer

Trading Expense Ratio (TER)

Question 4

Which of the following costs is NOT included in a mutual fund's Management Expense Ratio (MER)?

Accepted Answer

Brokerage commissions for portfolio transactions

Answer

Investment management fees

Answer

Administrative and operating costs

Answer

Trailer fees paid to the dealer

Question 5

An advisor recommends a mutual fund with a front-end load (FEL) to a client. The client invests $20,000, and the agreed-upon sales commission is 3%. How much of the client's money is actually invested in the fund?

Accepted Answer

$19,400

Answer

$20,000

Answer

$20,600

Answer

$19,940

Question 6

A short-term trading fee may be charged to a mutual fund investor for what reason?

Accepted Answer

To discourage frequent trading that can increase fund costs and harm long-term unitholders.

Answer

To pay the dealer an extra commission for a quick transaction.

Answer

To cover the fund's annual marketing and promotional expenses.

Answer

To compensate the fund manager for the inconvenience of a redemption.