IFC Mutual Fund Types and Structures 5

Question 1

Which of the following best describes a 'wrap account' in the context of mutual funds?

Accepted Answer

A managed account that bundles multiple mutual funds with advisory services for a single all-inclusive fee

Answer

Wrap accounts combine investment management, advice, and administration of multiple funds or securities into one account with a single bundled fee.

Question 2

A mutual fund's management expense ratio (MER) includes which of the following costs?

Accepted Answer

Management fees, operating expenses, and taxes charged to the fund

Answer

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.

Question 3

Under the fund-of-funds structure, a key concern for investors is:

Accepted Answer

Potential layering of fees, as both the top-level fund and underlying funds charge MERs

Answer

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.

Question 4

A mutual fund that uses derivatives to provide returns that are a multiple (e.g., 2x) of a benchmark index is called a:

Accepted Answer

Leveraged fund

Answer

Leveraged funds use derivatives or borrowing to amplify benchmark returns, but they also amplify losses, making them higher-risk products.

Question 5

When a mutual fund 'distributes' income to unitholders, the NAVPU of the fund will typically:

Accepted Answer

Decrease by the amount distributed per unit

Answer

When a fund distributes income or capital gains, the NAVPU drops by the per-unit distribution amount because cash leaves the fund.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC Mutual Fund Types and Structures 5