Mutual Funds

KNOWLEDGE EXPECTED OF: QAFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Define a mutual fund. 
  • Identify that mutual funds require a securities license for an individual to act in furtherance of a trade. 
  • Identify which organization(s) provide regulatory oversight for mutual funds. 
  • Determine how each of these factors may impact the suitability of a mutual fund: 
    • Time horizon 
    • Volatility
    • Risk tolerance
    • Investment objective 
    • Financial situation 
    • Personal situation 
    • Income
    • Liquidity 
    • Control 
    • Tax impact
    • Investment management process
    • Economic cycle
    • Cost
    • Historical performance 
    • Performance expectations
    • Personal attitudes 
  • Evaluate how each of the factors may impact the suitability of a mutual fund. 
  • Explain for whom a mutual fund may be suitable. 
  • Explain the structure that a mutual fund may have.
    • Trust
    • Corporation 
  • Explain the role of those involved with operating a mutual fund, such as:
    • Fund Manager
    • Custodian
    • Auditor 
  • Compare open-end and closed-end funds, specifically:
    • Liquidity
    • Trading Process
    • Transparency
    • Variability of structure
    • Cost 
  • Explain the different classes of mutual funds that may be available.  
  • Explain how the corporate class structure of a mutual fund affects its tax treatment.
    • When income is received from the fund
    • When the fund is disposed of 
  • Explain the information contained in a Fund Facts document for a mutual fund.  
  • Explain with whom a mutual fund is traded (i.e., who it is purchased from and redeemed to). 
  • Explain the types of mutual funds available, as classed by the Canadian Investment Funds Standards Committee (CIFSC).
    • Money market
    • Fixed income
    • Balanced
    • Equity
    • Specialty
    • Target-date 
  • Compare active and passive management.  
  • Explain rights available to mutual fund holders, such as:
    • Right of redemption for open ended funds 
    • Right of rescission
    • Voters’ rights 
  • Explain types of sales charges that may be charged on a mutual fund, such as:
    • No-load
    • Low-load
    • Front-end
    • Back-end or deferred sales charge 
  • Explain fees associated with mutual funds, such as: 
    • Trailer fee
    • Management fee
    • Management expense ratio
    • Trading expense ratio
    • Early redemption / short-term trading fee
    • Switching fees 
  • Define the Net Asset Value Per Share (NAVPS) for a mutual fund. 
  • Explain how a mutual fund is priced using the Net Asset Value Per Share (NAVPS). 
  • Interpret the Net Asset Value Per Share (NAVPS) for a mutual fund. 
  • Explain types of income that may be distributed by a mutual fund, such as:
    • Interest
    • Dividends
    • Capital gains 
  • Explain the preservation of character that exists when income received by a mutual fund is distributed to unitholders of the mutual fund.  
  • Explain the impact of a distribution from a mutual fund on the net asset value per share (NAVPS). 
  • Explain the impact of reinvested distributions from a mutual fund on adjusted cost basis. 
  • Interpret the return for a mutual fund.  
  • Explain the tax impact (based on asset location) of a mutual fund. 
    • When distributions are received due to trading activity in the pool of investments
    • Upon disposition of the mutual fund  
  • Estimate the tax impact (based on asset location) of a mutual fund.
    • When distributions are received due to trading activity in the pool of investments
    • Upon disposition of the mutual fund  
  • Explain how a return of capital distribution defers a tax liability. 
  • Explain that the return of a mutual fund is presented after the fund expenses have been deducted from the gross return of the fund.  

Mutual Fund Comparisons 

  • Compare mutual funds and pooled funds, specifically:  
    • Regulatory oversight
      • Organization(s) that regulate distribution
      • Licensing requirements for individuals who sell the funds
      • Main disclosure documents required for purchase
      • Minimum valuation periods
    • Permissible issuers of each type of fund
    • Protection against insurer insolvency 
  • Compare mutual funds and exchange traded funds, specifically:  
    • Regulatory oversight
      • Organization(s) that regulate distribution
      • Licensing requirements for individuals who sell the funds
      • Main disclosure documents required for purchase
      • Minimum valuation periods
    • Permissible issuers of each type of fund
    • Ownership and segregation of assets
    • Relative risk
    • Relative costs
    • Permissible use of derivatives
    • Allowance to take concentrated positions
    • Redemption rights / restrictions
    • Protection against insurer insolvency 
  • Compare mutual funds and segregated funds, specifically:
    • Regulatory oversight
      • Organization(s) that regulate distribution
      • Licensing requirements for individuals who sell the funds
      • Main disclosure documents required for purchase
      • Minimum valuation periods
    • Permissible issuers of each type of fund
    • Ownership and segregation of assets
    • Relative risk
    • Relative costs
    • Permissible use of derivatives
    • Allowance to take concentrated positions
    • Redemption rights / restrictions
    • Protection against insurer insolvency 
  • Compare mutual funds and hedge funds, specifically:
    • Level of regulatory oversight
    • Main disclosure documents for purchase
    • Permissible uses of derivatives 
  • Compare exchange traded funds and index mutual funds.  

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Define a mutual fund. 
  • Identify that mutual funds require a securities license for an individual to act in furtherance of a trade. 
  • Identify which organization(s) provide regulatory oversight for mutual funds. 
  • Determine how each of these factors may impact the suitability of a mutual fund: 
    • Time horizon 
    • Volatility
    • Risk tolerance
    • Investment objective 
    • Financial situation 
    • Personal situation 
    • Income
    • Liquidity 
    • Control 
    • Tax impact
    • Investment management process
    • Economic cycle
    • Cost
    • Historical performance 
    • Performance expectations
    • Personal attitudes 
  • Evaluate how each of the factors may impact the suitability of a mutual fund. 
  • Explain for whom a mutual fund may be suitable. 
  • Explain the structure that a mutual fund may have.
    • Trust
    • Corporation 
  • Explain the role of those involved with operating a mutual fund, such as:
    • Fund Manager
    • Custodian
    • Auditor 
  • Compare open-end and closed-end funds, specifically:
    • Liquidity
    • Trading Process
    • Transparency
    • Variability of structure
    • Cost
  • Explain the different classes of mutual funds that may be available.  
  • Explain how the corporate class structure of a mutual fund affects its tax treatment.
    • When income is received from the fund
    • When the fund is disposed of 
  • Explain the information contained in a Fund Facts document for a mutual fund.  
  • Explain with whom a mutual fund is traded (i.e., who it is purchased from and redeemed to). 
  • Explain the types of mutual funds available, as classed by the Canadian Investment Funds Standards Committee (CIFSC).
    • Money market
    • Fixed income
    • Balanced
    • Equity
    • Specialty
    • Target-date 
  • Compare active and passive management.  
  • Explain rights available to mutual fund holders, such as:
    • Right of redemption for open ended funds 
    • Right of rescission
    • Voters’ rights 
  • Explain types of sales charges that may be charged on a mutual fund, such as:
    • No-load
    • Low-load
    • Front-end
    • Back-end or deferred sales charge 
  • Explain fees associated with mutual funds, such as: 
    • Trailer fee
    • Management fee
    • Management expense ratio
    • Trading expense ratio
    • Early redemption / short-term trading fee
    • Switching fees 
  • Define the Net Asset Value Per Share (NAVPS) for a mutual fund. 
  • Explain how a mutual fund is priced using the Net Asset Value Per Share (NAVPS). 
  • Interpret the Net Asset Value Per Share (NAVPS) for a mutual fund. 
  • Explain types of income that may be distributed by a mutual fund, such as:
    • Interest
    • Dividends
    • Capital gains 
  • Explain the preservation of character that exists when income received by a mutual fund is distributed to unitholders of the mutual fund.  
  • Explain the impact of a distribution from a mutual fund on the net asset value per share (NAVPS). 
  • Explain the impact of reinvested distributions from a mutual fund on adjusted cost basis. 
  • Interpret the return for a mutual fund.  
  • Explain the tax impact (based on asset location) of a mutual fund. 
    • When distributions are received due to trading activity in the pool of investments
    • Upon disposition of the mutual fund  
  • Estimate the tax impact (based on asset location) of a mutual fund.
    • When distributions are received due to trading activity in the pool of investments
    • Upon disposition of the mutual fund  
  • Explain how a return of capital distribution defers a tax liability. 
  • Explain that the return of a mutual fund is presented after the fund expenses have been deducted from the gross return of the fund.  

Mutual Fund Comparisons 

  • Compare mutual funds and pooled funds, specifically:  
    • Regulatory oversight
      • Organization(s) that regulate distribution
      • Licensing requirements for individuals who sell the funds
      • Main disclosure documents required for purchase
      • Minimum valuation periods
    • Permissible issuers of each type of fund
    • Protection against insurer insolvency 
  • Compare mutual funds and exchange traded funds, specifically:  
    • Regulatory oversight
      • Organization(s) that regulate distribution
      • Licensing requirements for individuals who sell the funds
      • Main disclosure documents required for purchase
      • Minimum valuation periods
    • Permissible issuers of each type of fund
    • Ownership and segregation of assets
    • Relative risk
    • Relative costs
    • Permissible use of derivatives
    • Allowance to take concentrated positions
    • Redemption rights / restrictions
    • Protection against insurer insolvency 
  • Compare mutual funds and segregated funds, specifically:
    • Regulatory oversight
      • Organization(s) that regulate distribution
      • Licensing requirements for individuals who sell the funds
      • Main disclosure documents required for purchase
      • Minimum valuation periods
    • Permissible issuers of each type of fund
    • Ownership and segregation of assets
    • Relative risk
    • Relative costs
    • Permissible use of derivatives
    • Allowance to take concentrated positions
    • Redemption rights / restrictions
    • Protection against insurer insolvency 
  • Compare mutual funds and hedge funds, specifically:
    • Level of regulatory oversight
    • Main disclosure documents for purchase
    • Permissible uses of derivatives 
  • Compare exchange traded funds and index mutual funds.  
Additional Knowledge Expected of CFP Professionals
  • Compare mutual funds and pooled funds, specifically: 
    • Ownership and segregation of assets
    • Relative risk
    • Relative costs
    • Permissible use of derivatives
    • Allowance to take concentrated positions
    • Redemption rights / restrictions
  • Compare mutual funds and hedge funds, specifically:
    • Permissible uses of short positions
    • Liquidity
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