Chapter 13: Investing in Mutual Funds

Question 1

What is a mutual fund?

Answer 1

An investment where people pool their money to buy a diversified portfolio of stocks, bonds, or other securities, managed by professionals.

Question 2

What is Net Asset Value (NAV)?

Answer 2

NAV = (Value of Fund Portfolio – Liabilities) / Number of Shares
It’s the price per share, calculated at market close each day.

Question 3

What’s the difference between open-end and closed-end mutual funds?

Answer 3

Open-end: Shares bought/sold through the fund at NAV

Closed-end: Fixed number of shares traded on the stock exchange

Question 4

What is an index fund?

Answer 4

Tracks a market index (e.g., S&P/TSX), offering diversification at a low cost.

Question 5

What is an ETF (Exchange Traded Fund)?

Answer 5

Like an index fund but traded like a stock, offering flexibility and diversification.

Question 6

What are T-series mutual funds?

Answer 6

Tax-efficient funds that return capital instead of taxable income.

Question 7

What’s the difference between load and no-load funds?

Answer 7

Load fund: Charges sales commissions

No-load fund: No commission on purchases/sales
Types: front-end, back-end (deferred), and contingent sales loads

Question 8

Name and describe the main types of mutual funds.

Answer 8

Money Market Funds: Low risk, high liquidity

Mortgage Funds: Income-focused, hold mortgages

Bond Funds: Invest in debt securities for income

Dividend Funds: Aim for tax-advantaged income

Equity Funds: Invest in stocks for capital gains

Specialty Funds: Focus on sectors or regions

Real Estate Funds: Invest in property

Question 9

What is a fund family?

Answer 9

A group of mutual funds managed by one company. Investors can switch between them with little/no fees.

Question 10

What is a mutual fund prospectus?

Answer 10

A document that outlines:

• Fund objectives & risks
• Fees and past performance
• Management and investment strategies
• How shares are bought/sold
• Tax implications

Question 11

How do investors earn returns from mutual funds?

Answer 11

1) Income dividends
2) Capital gains distributions
3) Selling shares for profit

Question 12

How are mutual funds taxed?

Answer 12

Dividends and capital gains (even if reinvested) are taxable in the year received—even if only held part of the year.