Mutual Funds: Structure and Regulation
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Questions and Answers

What is a primary reason why management fees for money market funds tend to be lower than for equity funds?

  • Money market funds require more detailed analysis.
  • Money market funds are managed by senior analysts.
  • Equity funds necessitate ongoing research. (correct)
  • Equity funds typically have higher management asset thresholds.

    • How are management fees for funds typically calculated?

  • As a fixed dollar amount based on the fund's performance.
  • As a percentage of the net assets under management. (correct)
  • As a fee charged quarterly based on investor returns.
  • As a percentage of the fund's total operating expenses.

    • Which of the following is not covered by management fees?

  • Interest charges on borrowings.
  • Auditing expenses for compliance.
  • Investment research costs. (correct)
  • Custodial fees for safeguarding assets.

    • What is a significant criticism of the management fee structure?

    <p>It rewards managers based solely on assets managed rather than performance.</p> Signup and view all the answers

    If a mutual fund has total annual expenses of $10 million and $500 million in assets, what is its Management Expense Ratio (MER)?

    <p>2.0%</p> Signup and view all the answers

    What is the maximum period an investor has to cancel a purchase after receiving confirmation?

    <p>48 hours</p> Signup and view all the answers

    Which document must be filed with the securities commission annually for a mutual fund?

    <p>Simplified prospectus</p> Signup and view all the answers

    What key feature does the simplified prospectus have compared to a typical prospectus for common shares?

    <p>It is shorter and simpler.</p> Signup and view all the answers

    What sections does the simplified prospectus consist of?

    <p>Part A and Part B</p> Signup and view all the answers

    When is it necessary to provide the Fund Facts document again to an investor?

    <p>If it has been amended or renewed</p> Signup and view all the answers

    What language style is required for the simplified prospectus?

    <p>Plain and easy-to-understand</p> Signup and view all the answers

    Which of the following is true regarding Part A of the simplified prospectus?

    <p>It provides introductory information applicable to mutual funds.</p> Signup and view all the answers

    What is required to ensure that the disclosure for a mutual fund includes information about derivatives?

    <p>It must explain how derivatives achieve investment and risk objectives.</p> Signup and view all the answers

    Which practice is considered unlawful for mutual fund sales representatives when dealing with transactions?

    <p>Backdating an order to achieve a favorable price.</p> Signup and view all the answers

    What must mutual fund sales representatives ensure regarding their licensing?

    <p>They are registered in each province where they intend to sell.</p> Signup and view all the answers

    What is NOT a prohibited selling practice for mutual fund sales representatives?

    <p>Sharing personal opinions about market fluctuations.</p> Signup and view all the answers

    What does NAVPS stand for in mutual fund transactions?

    <p>Net Asset Value Per Share.</p> Signup and view all the answers

    When can a trade order for a mutual fund typically be priced at the end of the current business day?

    <p>If it is entered before 4:00 p.m. ET.</p> Signup and view all the answers

    What is a main consequence of engaging in unethical selling practices as a mutual fund representative?

    <p>Loss of registration and ability to sell funds.</p> Signup and view all the answers

    What must a mutual fund sales representative disclose regarding the risks of derivatives?

    <p>The limits and risks associated with the planned use of derivatives.</p> Signup and view all the answers

    Which of the following actions would violate sales practices in mutual fund representation?

    <p>Making verbal offers to repurchase securities to avoid losses.</p> Signup and view all the answers

    Which of the following actions is permitted for fund managers regarding non-monetary benefits to distributors?

    <p>Offering occasional rewards of minimal value</p> Signup and view all the answers

    What is the primary purpose of the Sales Practices Bulletins issued by the Investment Funds Institute of Canada?

    <p>To interpret rules and provide examples of acceptable sales practices</p> Signup and view all the answers

    In what situation should a mutual fund sales representative seek approval before sending out sales communications?

    <p>In all cases, regardless of communication type</p> Signup and view all the answers

    What types of courses can fund managers NOT financially subsidize?

    <p>Skill enhancement courses</p> Signup and view all the answers

    Which commission rate aspect should fund managers be aware of?

    <p>New fund commission rates may differ from established funds</p> Signup and view all the answers

    What must fund representatives be familiar with regarding sales communications?

    <p>The entirety of NI 81-102 and NI 81-105 instruments</p> Signup and view all the answers

    What constitutes a 'general marketing expense' that fund managers cannot support?

    <p>Skills training courses for representatives</p> Signup and view all the answers

    Which of the following types of sales communications does not require prior approval from a compliance officer?

    <p>Informal conversations with existing clients</p> Signup and view all the answers

    What is potentially allowed for fund representatives in terms of occasional rewards?

    <p>Offering promotional merchandise with nominal value</p> Signup and view all the answers

    Study Notes

    Mutual Funds: Structure and Regulation

    • Mutual funds are one of the most widely recognized managed products
    • Rules and regulations of the mutual fund industry are discussed
    • Importance of "Know Your Client" and suitability requirements in mutual funds
    • Documentation and disclosure requirements are explained

    Learning Objectives

    • List advantages and disadvantages of managed products
    • Describe advantages and disadvantages of mutual funds and different fund structures
    • Calculate net asset value per share and how mutual fund units are priced
    • Analyze impacts of charges associated with mutual funds
    • Describe mutual fund regulatory requirements
    • Describe mutual fund restrictions and prohibited selling practices
    • Describe the "Know Your Client" rule, "Know Your Product" requirements, and suitability
    • Discuss elements in client disclosure document and circumstances requiring KYC updates

    Content Areas

    • Overview of Managed Products
    • Overview of Mutual Funds
    • Pricing Mutual Fund Units
    • Mutual Fund Regulation
    • Other Forms and Requirements
    • "Know Your Client" and "Know Your Product" Rules
    • Requirements for Opening and Updating an Account

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    Related Documents

    CSC Volume 2 Chapter 5: Mutual Funds PDF

    Description

    This quiz covers the structure and regulation of mutual funds, including legal requirements and the importance of client suitability. Understand the advantages and disadvantages of managed products and explore key concepts like net asset value, documentation, and disclosure requirements.

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