IFC Mutual Fund Types and Structures 4

Question 1

A principal-protected note (PPN) linked to a mutual fund primarily guarantees:

Accepted Answer

Return of the original invested principal at maturity

Answer

PPNs guarantee the return of the investor's principal at maturity, with any additional return linked to the performance of the underlying fund.

Question 2

Segregated funds differ from mutual funds primarily because they:

Accepted Answer

Are insurance products that offer maturity and death benefit guarantees

Answer

Segregated funds are issued by insurance companies and include contractual guarantees on maturity and death benefits not available in standard mutual funds.

Question 3

An investor comparing a front-end load fund to a no-load fund would find that the key difference is:

Accepted Answer

Front-end load funds charge a sales commission at purchase that reduces the initial investment amount

Answer

Front-end load funds deduct a sales commission from the investor's initial purchase, reducing the amount actually invested in the fund.

Question 4

What is the role of a custodian in a mutual fund structure?

Accepted Answer

To hold the fund's assets safely and separately from the fund manager's own assets

Answer

The custodian (typically a bank or trust company) holds the fund's securities in safekeeping, ensuring investor assets are protected from fund manager insolvency.

Question 5

A deferred sales charge (DSC) schedule typically means that:

Accepted Answer

A redemption fee is charged if units are sold within a specified holding period

Answer

DSC funds charge a declining redemption fee if the investor sells units before a set number of years have passed, typically starting around 5–6%.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC Mutual Fund Types and Structures 4