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The Modern Mutual Fund
Investment Funds In Canada (FIN-3004)
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The Modern Mutual Fund
“1. Define a mutual fund, describe the advantages and disadvantages of investing in mutual funds, and differentiate between the two principal types of mutual fund structures. ◦ A mutual fund is an investment vehicle operated by a fund manager that pools contributions from investors and invests them in a variety of securities, which may include stocks, bonds and money market instruments, depending on the investment policies and objectives of the mutual fund. ◦ A modern mutual fund can be established as either a trust or a corporation. Mutual fund trusts issue units, while mutual fund corporations issue shares. ◦ The trust structure enables the fund itself to avoid taxation. Any interest, dividends or capital gains income, net of the fund’s fees and expenses can be passed on directly to the unitholders without the trust being subject to any income taxes. ◦ A mutual fund corporation’s holdings must consist mainly of a diversified portolio of securities. The income that a mutual fund corporation earns must be derived primarily from the interest and dividends received on the securities it owns and net capital gains realized from the sale of these securities.”
“2. Describe the organizational features and functions of a mutual fund and compare and contrast the roles played by the directors and trustees, fund manager, distributors, and custodian. ◦ The board of directors of a mutual fund corporation, and the trustees of a mutual fund trust, have ultimate responsibility for the fund’s activities, including ensuring that the investments are in keeping with the fund’s investment objectives. ◦ The fund manager provides day-to-day supervision of the fund’s investment portolio. ◦ The fund manager typically hires a portolio manager or managers to manage the fund’s investment portolio, and hires a custodian to hold the fund’s assets and a registrar and transfer agent to keep track of units or shares outstanding and who owns the units or shares. The fund manager is responsible for the distribution of units and can use a variety of distribution channels consisting of mutual fund dealers and investment dealers, both those affiliated and unaffiliated with the fund manager. ◦ Mutual funds are distributed in many ways, including dealing representatives who are employees or agents of investment dealers and mutual fund dealers. ◦ The custodian receives and holds the fund’s money obtained from all sources—investors buying the fund’s units or shares, income earned by the fund’s investment portolio, proceeds from the sale of the fund’s investments and distributes the fund’s money to pay the fund’s expenses.”
“3. Describe how mutual funds are regulated and describe the role of the simplified prospectus and the fund facts document. ◦ Mutual funds are subject to provincial and territorial laws and regulations. ◦ NI 81-102 addresses key aspects of the creation, operation and distribution of mutual fund securities. ◦ National Instrument 81-101 sets out the requirements as to the form and content of a mutual fund’s disclosure documents, including the fund facts document, which is the single most important document for investors.
◦ The fund facts document states the fundamental investment objectives of the fund, the risk factors, and the fees and charges that investors will have to pay directly and fees and expenses paid by the fund. ◦ The form and content of the fund facts document must comply with the requirements of National Instrument 81-101; the fund facts document must be given to the investor.”
The Modern Mutual Fund
Course: Investment Funds In Canada (FIN-3004)
University: Lambton College of Applied Arts and Technology
