19 - M.Fund Types/Features

Question 0

What do Cash & Equivalent funds consist of?

Answer 0

Canadian/US Money Market

T-Bills, high quality corporate paper, short term bonds.

Question 1

What are the four main groups of mutual funds?

Answer 1

1. Cash & equivalents
2. Fixed-income
3. Balanced
4. Equity

Question 2

How do Cash & Equivalent funds pay out distributions and how are they taxed?

Answer 2

Keep a fixed share/unit value (eg $10) and pay out cash or new shares on a monthly (or qtrly) basis.
Taxed as interest income.

Question 3

What do Fixed Income funds consist of?

Answer 3

Canadian bond, income trust, HY bond, short term and mortgage, foreign bond

Question 4

What are the risks and typical income stream of a bond fund?

Answer 4

Interest rate volatility risk and also default risk if invest in corp bonds.

Income is interest but possibly cap gains if bonds are sold at profit.

Question 5

What risks and income types are related to balanced funds?

Answer 5

Market and interest rate risk

Income is interest, dividends and cap gains.

Question 6

What are the risks and returns associate with equity funds?

Answer 6

Market risk (possibly FX risk if foreign stocks are held)
Returns are dividends and cap gains

Question 7

Put these in order of risk (L-H):

• Balanced
• Bond
• Money Market
• Mortgage

Answer 7

1. Money Market
2. Mortgage
3. Bond
4. Balanced

Question 8

Put these in order of risk (L-H):

• Equity
• Dividend
• Specialty
• Real estate

Answer 8

1. Dividend
2. Equity
3. Real estate
4. Specialty

Question 9

What are the pros and cons of a multi-manager fund?

Answer 9

Lower risk and volatility than only one style, but one manager’s weak performance could offset a successful one. Also fees could be higher.

Question 10

What tax forms are sent to the holder of an unincorporated fund and what are sent to a shareholder of an incorporated fund?

Answer 10

T3 -unincorporated

T5 -incorporated

Question 11

Why should an investor avoid buying a fund at the end of the year?

Answer 11

Unexpected capital gains in Dec will be taxed that year regardless how long the fund was held.

Question 12

What is the right of redemption?

Answer 12

Mutual fund holders can request to withdraw their investments at any time and receive the $ amount bases on NAVPS.

Question 13

What is a ratio withdrawal plan?

Answer 13

Investor receives a fixed percentage of their MF holdings in cash each year.

Question 14

What is a fixed-dollar withdrawal plan?

Answer 14

MF holder automatically withdraws a round $ amount every month or quarter.

Question 15

What is a fixed-period withdrawal plan?

Answer 15

The investor’s funds are withdrawn from the MF over a pre-determined period of time until there are no shares remaining at the end.

Question 16

What is a life expectancy-adjusted withdrawal plan?

Answer 16

Based on life expectancy of plan holder and mortality tables, withdraws certain amount each year.

Question 17

What are two methods of calculating the time-weighted rate of return?

Answer 17

Daily valuation method (daily change in NAVPS is expressed as an index)
Modified Dietz method (assumes constant rate of return and weights cash flows by amt of time held)

Question 18

What are two ways to measure the comparative return on a mutual fund?

Answer 18

Benchmark comparison

Peer group comparison