Chapter 17 - Mutual Funds: Structure and Regulation (Done) Flashcards
What are managed products in the context of mutual funds?
Managed products include mutual funds, ETFs, segregated funds, liquid alternatives, hedge funds, listed private equity funds, closed-end funds, and labor-sponsored venture capital corporations. These products can be either actively or passively managed.
What is the difference between active and passive management?
Active management involves fund managers making investment decisions to outperform a specific index. Passive management aims to replicate the returns of a market index without making individual security selections.
What are some advantages of managed products?
Advantages include professional management, economies of scale, low-cost diversification, liquidity and flexibility, potential tax benefits, and low minimum investment options.
What are some disadvantages of managed products?
Disadvantages include lack of transparency, liquidity constraints, high fees (e.g., management fees), and volatility of returns.
What are the different fee structures for mutual funds?
Fee structures include front-end loads (sales commission charged upfront), back-end loads or deferred sales charges (commission charged when the fund is sold), and no-load funds (no sales commission, only management fees).
What are trailer fees in the context of mutual funds?
Trailer fees are annual fees paid to fund managers and sales representatives as long as the client holds the fund. They are part of the overall management fees.
What are early redemption fees?
Early redemption fees are charged if the fund is redeemed within 90 days of the initial purchase. This fee can be a flat amount or a percentage of the original purchase cost.
What are the two main structures of mutual funds?
Mutual funds can be structured as trusts or corporations. Trust structures treat investors as unit holders, while corporate structures treat them as shareholders.
What roles do directors, fund managers, distributors, and custodians play in mutual funds?
Directors ensure investments align with fund objectives. Fund managers oversee day-to-day operations and investment portfolios. Distributors are investment advisors selling the funds. Custodians manage the money flow and record ownership of fund shares.
How is the Net Asset Value (NAV) per share calculated for mutual funds?
NAV per share is calculated by subtracting total liabilities from total assets and then dividing by the number of outstanding units.
What are the regulatory requirements for mutual funds?
Mutual funds must provide disclosures like fund facts, a simplified prospectus, annual information forms, and annual audited statements. They must also comply with regulatory standards set by bodies like the Mutual Fund Dealers Association (MFDA).
What are some restrictions on mutual fund management practices?
Restrictions include limits on purchasing more than 10% of a single issuer’s securities, no purchases of shares in the manager’s own company, no borrowing for leverage, no margin buying or short selling, and limitations on holdings in illiquid securities.
What disclosures are required for mutual funds?
Required disclosures include fund facts, a simplified prospectus, annual information forms, annual audited statements, and notification of material changes.
What is the Mutual Fund Dealers Association (MFDA)?
The MFDA regulates how mutual funds are sold but does not regulate the activities of dealers under another self-regulatory organization (SRO).
What qualifications are needed to sell mutual funds?
To sell mutual funds, one must be registered with securities administrators, have completed the Canadian Securities Course or the Investment Funds in Canada course, be employed by a distribution company, and not engage in other forms of employment. Additionally, detailed reports about past businesses and employment must be provided, and changes in important information must be reported within five business days.
