Canadian Investment Funds Course Unit 6: Types of Mutual Funds
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Questions and Answers

What is a core element of a Dealing Representative's role?

  • Selling individual stocks
  • Understanding different types of mutual funds (correct)
  • Managing real estate investments
  • Providing tax advice to clients

    • How long does Unit 6: Types of Mutual Funds take to complete?

  • 4 hours
  • 3 hours and 15 minutes
  • 2 hours and 30 minutes (correct)
  • 1 hour and 45 minutes

    • What type of mortgages do most mortgage securities hold?

  • Commercial mortgages
  • National Housing Act (NHA) mortgages (correct)
  • Variable rate mortgages
  • Government-insured mortgages

    • Which lesson in Unit 6 covers the introduction to mutual funds?

    <p>Lesson 1</p> Signup and view all the answers

    What are the main types of mutual funds mentioned in the text?

    <p>Money market, Fixed income, Balanced, Equity, Specialty funds</p> Signup and view all the answers

    Why do mortgage funds typically pay higher income than money market funds?

    <p>Mortgage rates are usually higher than money market security interest rates</p> Signup and view all the answers

    What is the primary role of the Canada Mortgage and Housing Corporation (CMHC)?

    <p>Providing mortgage loan insurance</p> Signup and view all the answers

    What is a key benefit of mutual funds according to the text?

    <p>Diversification and professional fund management</p> Signup and view all the answers

    How is the income from mortgage funds distributed to investors?

    <p>A combination of principal repayment and interest payments</p> Signup and view all the answers

    Which aspect of mutual funds is crucial for addressing clients' diverse investment requirements?

    <p>Variety of fund types</p> Signup and view all the answers

    What happens to the principal repayment in a mortgage fund?

    <p>It is used to purchase new mortgages</p> Signup and view all the answers

    What kind of mutual fund is growth-oriented according to the text?

    <p>Equity fund</p> Signup and view all the answers

    What should a Dealing Representative focus on to make suitable recommendations for clients?

    <p>'Structure of each fund type and how each meets different investment goals'</p> Signup and view all the answers

    How does a decrease in interest rates affect a mortgage fund's price?

    <p>Increases the price</p> Signup and view all the answers

    Why does a mortgage fund invest in short-term bonds?

    <p>For liquidity purposes</p> Signup and view all the answers

    How are mortgage securities structured for sale in the secondary market?

    <p>Pooled together in mortgage securities</p> Signup and view all the answers

    What type of income do Global Equity Funds typically provide?

    <p>Capital gains and foreign income</p> Signup and view all the answers

    How are Sector Funds characterized in terms of their investment focus?

    <p>They have a narrow investment focus</p> Signup and view all the answers

    What is the risk classification for International Equity Funds?

    <p>Medium, Medium to High, High</p> Signup and view all the answers

    Which investors are typically suited for Sector Funds?

    <p>Investors with a higher risk profile</p> Signup and view all the answers

    What type of income do Sector Funds typically provide?

    <p>Capital gains, dividends, and other income</p> Signup and view all the answers

    How do Global Equity Funds mitigate some risks compared to other types of funds?

    <p>By holding both domestic and foreign securities</p> Signup and view all the answers

    Why should investors in Sector Funds have a long time horizon?

    <p>To withstand the volatile nature of these funds</p> Signup and view all the answers

    What is the main distinguishing feature of Sector Funds compared to other mutual funds?

    <p>Their focus on specific industries or sectors</p> Signup and view all the answers

    What is the main type of income generated by Real Property Funds?

    <p>Dividends and capital gains</p> Signup and view all the answers

    Why are Real Property Funds considered high risk investments?

    <p>Because they invest in a single business sector</p> Signup and view all the answers

    What is the main type of investment strategy employed by Commodity Pool Funds?

    <p>Employing alternative trading strategies</p> Signup and view all the answers

    What is a key characteristic that sets Commodity Pool Funds apart from traditional mutual funds?

    <p>They can invest in physical commodities and derivatives beyond the usual limits</p> Signup and view all the answers

    What type of investors are Real Property Funds typically suitable for?

    <p>Investors with a high risk profile willing to invest long-term</p> Signup and view all the answers

    Why are Real Property Funds less liquid compared to other mutual funds?

    <p>Investors may not be able to convert their investment into cash easily</p> Signup and view all the answers

    What is the primary focus of Real Property Funds in terms of holdings?

    <p>Properties and securities related to real estate management or development</p> Signup and view all the answers

    What regulatory body governs the operation of Commodity Pool Funds?

    <p>National Instrument 81-104</p> Signup and view all the answers

    What is the primary focus of target date funds?

    <p>Providing balance of income and long-term capital growth</p> Signup and view all the answers

    How do target date funds differ from balanced funds?

    <p>They focus on specific future dates</p> Signup and view all the answers

    In target date funds, why does the mutual fund portfolio hold a greater percentage in equities in the early stages?

    <p>To achieve long-term capital growth</p> Signup and view all the answers

    What distinguishes asset allocation funds from other types of mutual funds?

    <p>They change asset allocation based on objectives</p> Signup and view all the answers

    Why may asset allocation funds be considered higher risk than balanced funds?

    <p>They lack a minimum percentage requirement in fixed income</p> Signup and view all the answers

    How do target date funds differ from asset allocation funds?

    <p>Target date funds focus on specific future dates, asset allocation funds do not</p> Signup and view all the answers

    What is the main objective of changing asset allocation in mutual funds?

    <p>To balance risk and potential return</p> Signup and view all the answers

    Why do asset allocation funds have varying risks?

    <p>According to the individual fund mandates and objectives</p> Signup and view all the answers

    Study Notes

    Mutual Funds Introduction

    • Mutual funds are a core element of a Dealing Representative's role
    • Understanding the structure of each fund type and how they meet different investment goals is essential for making suitable recommendations for clients

    Types of Mutual Funds

    • Mortgage Funds:
      • Invest in mortgage securities, which are pools of mortgages combined together
      • Typically pay higher income than money market funds
      • Income is a combination of principal repayment and interest payments on mortgages
      • Principal repayment is retained in the fund and used to purchase new mortgages
      • Interest is distributed to the fund's unitholders
      • Fund's price is affected by interest rates
    • International Equity Funds:
      • Investment objective: long-term growth
      • Type of income: capital gains and foreign income
      • Holdings: common shares of foreign companies
      • Client suitability: investors who already have Canadian and U.S. investments, and want to add international investments to their portfolios
      • Risk classification: medium, medium to high, high
    • Sector Funds:
      • Investment objective: long-term capital appreciation
      • Type of income: capital gains, dividends, and other income
      • Holdings: common shares of corporations in a specific industry, sector, or geographical region
      • Client suitability: investors who have a higher risk profile
      • Risk classification: high
    • Real Property Funds:
      • Investment objective: long-term growth
      • Type of income: capital gains, dividends, and other income
      • Holdings: residential, commercial or industrial properties, and in securities from companies involved in real estate management or development
      • Client suitability: investors who want exposure to the real estate sector
      • Risk classification: high
    • Commodity Pool Funds:
      • Investment objective: capital growth
      • Permitted to use or invest in specified derivatives and physical commodities beyond what is permitted by National Instrument 81-102
      • Governed by National Instrument 81-104
      • Employ alternative trading strategies for their portfolios
    • Asset Allocation Funds:
      • Investment objective: income and long-term growth
      • Type of income: interest, dividends, and capital gains
      • Holdings: common shares and bonds
      • Client suitability: investors seeking income and growth
      • Risk classification: low to medium, medium
    • Target Date Funds:
      • Investment objective: provide a balance of income and long-term capital growth, relative to the target date
      • Focus on a specific future date and changes the asset mix throughout the life of the fund
      • Purpose: to meet an investment goal at a specific time in the future, such as the start of an investor's retirement or a child's post-secondary education
      • In the early stages, the mutual fund portfolio holds a greater percentage in equities

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    Types of Mutual Funds PDF

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    Learn about the different types of mutual funds and how they can help meet investment goals. Understand the structure, history, and benefits of mutual funds to make suitable recommendations for clients as a Dealing Representative.

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