Mutual Funds: Structure and Regulation

A percentage of the fund's assets, paid to the fund manager, to cover managing the fund.

Low management fees, typically between 0.50% and 1% of the average daily net asset value.

Higher management fees, typically 2% - 3% (or higher), as fund management requires more ongoing research.

Lower than equity funds because they passively track an index, usually rebalancing occasionally.

Management Expense Ratio; calculates annual expenses as a percentage of the fund's average daily net asset value.

A shorter, simpler document than a typical prospectus, outlining mutual fund information.

A document often accompanying a simplified prospectus, providing key information about a mutual fund.

Options for investors, outlining how to cancel purchases.

Filing of the simplified prospectus with the securities commission annually, with exceptions for updates as needed.

Section providing introductory and general mutual fund information.

Section containing detailed information about a specific mutual fund.

Group of funds managed under common administration.

The percentage charged for buying or selling mutual fund units, which can vary between new and established funds.

Funds that cannot be used for general marketing expenses like client mailings.

Fund managers cannot financially support skills training courses like communication or presentation skills.

Fund managers are prohibited from offering significant non-monetary perks to distributors.

Small rewards like pens or t-shirts may be allowed if they are unlikely to influence sales practices.

Publications by the Investment Funds Institute of Canada that clarify and provide examples of ethical sales practices.

Rules outlined by NI 81-102 and NI 81-105 which dictate how sales communications should be conducted.

These guidelines apply to anyone involved in communicating with clients, including the representative, their firm, the fund's promoter, manager, distributor, or anyone providing a service.

Sales communications must be approved by the branch manager or compliance officer before they can be sent.

Mutual funds must clearly explain how they use derivatives to achieve their investment and risk objectives, outlining the limitations and risks associated with these financial instruments.

Mutual fund sales representatives must adhere to strict regulations and avoid certain unethical sales practices, as these can lead to loss of registration.

It's illegal for sales representatives to guarantee future prices for mutual fund shares or units, as the price is determined by the NAVPS (Net Asset Value Per Share) at the next regular valuation date.

Mutual fund representatives cannot offer to repurchase securities to protect clients from price declines. Investors have the right of redemption, but this is not a guarantee of return.

It's illegal to sell mutual funds without the proper license in each province. Representatives must be registered and keep authorities informed of material changes in their circumstances.

Mutual fund companies specify the time before which trades must be entered to receive the current day's closing price. Orders placed after this time are priced at the following day's NAVPS.

It's unlawful for a representative to backdate an order to buy or sell shares at a previous day's price to mislead clients. This is a form of market manipulation.

This represents the value of one share in a mutual fund at a specific point in time, usually calculated at the end of each trading day.

This is the specific day when the NAVPS (Net Asset Value Per Share) of a mutual fund is calculated, typically at the end of each business day.