IFC Mutual Fund Fees and Services 5

Question 1

A mutual fund company charges a 'setup fee' of $150 when a client opens a new registered account. This fee is best categorized as:

Accepted Answer

An account administration fee separate from investment management costs

Answer

Account setup and administration fees are separate from the fund's MER and are charged by the dealer or fund company for account maintenance services.

Question 2

An investor holds 1,000 DSC fund units currently worth $20 per unit. The DSC schedule shows a 3% fee still applies. How much would the DSC fee be on a full redemption?

Accepted Answer

$600

Answer

DSC fees are calculated on the redemption value: 1,000 units × $20 = $20,000, and 3% of $20,000 = $600.

Question 3

The Fund Facts document must include which of the following cost-related disclosures?

Accepted Answer

The sales charges, ongoing fund expenses, and impact of costs on a $1,000 investment

Answer

Fund Facts must clearly disclose sales charges, the MER, and a standardized example showing the cost impact on a hypothetical $1,000 investment over 1, 3, 5, and 10 years.

Question 4

Which of the following mutual fund purchase options would result in the lowest immediate out-of-pocket cost to a client at the time of investment?

Accepted Answer

Deferred sales charge (DSC)

Answer

Under DSC, no sales commission is paid at purchase — the full investment amount goes to work immediately, with fees only applying if the client redeems early.

Question 5

A fund company offers a 'PAC' (pre-authorized chequing) service. What is its primary benefit to investors?

Accepted Answer

It automates regular contributions, enabling dollar-cost averaging discipline

Answer

PAC plans automate regular contributions to a mutual fund, promoting disciplined saving and naturally implementing dollar-cost averaging over time.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC Mutual Fund Fees and Services 5