IFC - Investment Funds in Canada Mutual Fund Types and Structures Questions and Answers

Question 1

Which of the following is a defining characteristic of an open-end mutual fund?

Accepted Answer

It continuously issues and redeems units directly with investors at the Net Asset Value Per Share (NAVPS).

Answer

It has a fixed number of units that trade on a stock exchange.

Answer

It can only be purchased by institutional investors.

Answer

Its primary holdings are restricted to illiquid assets like private equity and real estate.

Question 2

A mutual fund reports total assets of $250 million and total liabilities of $10 million. If the fund has 12 million units outstanding, what is its Net Asset Value Per Share (NAVPS)?

Accepted Answer

$20.00

Answer

$21.67

Answer

$20.83

Answer

$22.50

Question 3

An investor wants a single investment solution that provides broad diversification by investing in a portfolio of other mutual funds. This investor is comfortable with paying two layers of management fees in exchange for this professional oversight and asset allocation. Which fund type is most suitable?

Accepted Answer

A fund of funds

Answer

A sector fund

Answer

A money market fund

Answer

An equity index fund

Question 4

What is a key tax advantage of a mutual fund corporation structure compared to a mutual fund trust for an investor holding the fund in a non-registered account?

Accepted Answer

Switches between different fund classes within the same corporation are generally not considered a taxable disposition.

Answer

All distributions from a corporate structure are considered a tax-free return of capital.

Answer

Losses within the corporation can be passed directly to the individual investor to offset other income.

Answer

It is exempt from capital gains tax at the corporate level.

Question 5

An investor purchased a mutual fund with a Deferred Sales Charge (DSC) schedule prior to the 2022 ban. If they redeem their full investment two years into a seven-year schedule, what is the most likely consequence?

Accepted Answer

They will be charged a redemption fee, calculated as a percentage of the amount invested, which decreases the longer the fund is held.

Answer

No fee will be charged as DSCs are now illegal.

Answer

A front-end load will be charged on the redemption value.

Answer

The redemption will be processed, but the proceeds will be held in trust for the remainder of the schedule.

Question 6

A balanced fund would typically invest in which of the following?

Accepted Answer

A mix of equities and fixed-income securities.

Answer

Exclusively in high-growth technology stocks.

Answer

Solely in short-term government and corporate debt.

Answer

Primarily in physical commodities like gold and oil.