Mutual Fund Types and Structures Flashcards
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Read the first 7 Mutual Fund Types and Structures flashcards as text
Which of the following best describes a 'wrap account' in the context of mutual funds?
Answer: A managed account that bundles multiple mutual funds with advisory services for a single all-inclusive fee
Wrap accounts combine investment management, advice, and administration of multiple funds or securities into one account with a single bundled fee.
A mutual fund's management expense ratio (MER) includes which of the following costs?
Answer: Management fees, operating expenses, and taxes charged to the fund
The MER captures the management fee paid to the fund manager plus operating expenses and applicable taxes, expressed as a percentage of average net assets.
Under the fund-of-funds structure, a key concern for investors is:
Answer: Potential layering of fees, as both the top-level fund and underlying funds charge MERs
Fund-of-funds structures can result in double-layered fees because investors pay the MER of the top-level fund plus the MERs of all underlying funds held.
A mutual fund that uses derivatives to provide returns that are a multiple (e.g., 2x) of a benchmark index is called a:
Answer: Leveraged fund
Leveraged funds use derivatives or borrowing to amplify benchmark returns, but they also amplify losses, making them higher-risk products.
When a mutual fund 'distributes' income to unitholders, the NAVPU of the fund will typically:
Answer: Decrease by the amount distributed per unit
When a fund distributes income or capital gains, the NAVPU drops by the per-unit distribution amount because cash leaves the fund.
An ethical or socially responsible investing (SRI) mutual fund differs from a conventional fund primarily because it:
Answer: Screens investments based on environmental, social, and governance (ESG) criteria
SRI funds apply ESG screens to exclude or include companies based on non-financial criteria such as environmental impact, labour practices, and corporate governance.
The net asset value per unit (NAVPU) of a mutual fund is calculated as:
Answer: Total assets minus total liabilities, divided by the number of units outstanding
NAVPU equals the fund's total assets minus its total liabilities, divided by the total number of units outstanding, calculated at least daily for open-end funds.