IFC Exam Dumps - Investment Funds in Canada (IFC) Exam

The holding out rule is a regulatory requirement that prohibits registered individuals from using any title or designation other than their registration category when dealing with clients or potential clients. The purpose of this rule is to prevent misleading or confusing representations about the qualifications, roles, and responsibilities of registered individuals. According to Section 4.4 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), individuals who are registered to sell mutual funds must use the title “dealing representative” when holding out to clients or potential clients. Therefore, Ai Fen must prominently note “dealing representative” on her business card to comply with the holding out rule. The other options are not valid registration categories for selling mutual funds. Option B is a generic term that does not specify the type of securities that can be sold. Option C is a registration category for individuals who trade securities on behalf of an investment dealer. Option D is a professional designation that does not indicate registration status. References: [Holding Out Rule], [Registration Categories], [Registration Requirements, Exemptions and Ongoing Registrant Obligations]

Maureen is looking for investments that provide steady income with low to medium risk. Money market funds, mortgage funds, and bond funds are suitable for her because they invest in fixed-income securities that pay regular interest and have lower volatility than equity funds. Money market funds invest in short-term debt instruments such as treasury bills and commercial paper. Mortgage funds invest in mortgages or mortgage-backed securities that are secured by real estate properties. Bond funds invest in bonds issued by governments or corporations with varying maturities and credit ratings. References: 9 Best Retirement Income Funds Of 2023 – Forbes Advisor, 5 Best Income Funds for Retirement - U.S. News, 7 Best Funds for Retirement | Investing | U.S. News

C is correct because the management expense ratio (MER) reflects the percentage of each dollar of fund assets that is used to pay for management services and operating expenses of a mutual fund. The MER includes various fees and expenses, such as management fees, administration fees, trailer fees, audit fees, legal fees, and taxes. The MER reduces the return of the fund, as it is deducted from the fund’s income and capital gains before they are distributed to investors. Mutual funds are not required to calculate the MER on a daily basis (A), but rather on an annual basis. Trailer and brokerage fees are included in the MER (B), not charged separately. Mutual fund performance is impacted by the MER (D), as it lowers the net return of the fund. Rates of return are published net of fees, but they do not reflect the impact of the MER on the fund’s performance.

One of the steps in the Know Your Client (KYC) rule is to assess the client’s financial resources, which include their income, assets, liabilities, and net worth. Asking about pension plans at work is a relevant question to determine the client’s sources of income and potential retirement savings. Pension plans can also affect the client’s risk tolerance and investment objectives, as they may provide a stable and guaranteed income in the future. Asking about children, money needs, and investment experience are also important questions, but they relate to other aspects of the KYC rule, such as personal circumstances, time horizon, and investment knowledge. References:

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 1: The Investment Funds Industry, Section 1.4: The Know Your Client (KYC) Rule, page 1-111

Know Your Client (KYC) Definition - Investopedia

Interest income distribution is a type of income that a mutual fund pays to its investors from the interest earned on its fixed-income investments, such as bonds and mortgages. Interest income distribution is taxed as ordinary income at the investor’s top marginal tax rate, which is the highest tax rate that applies to their income bracket. Therefore, B is the correct answer. References: Interest Income and Taxes - Fidelity, Topic No. 403, Interest Received | Internal Revenue Service

A passively managed fund is a type of investment fund that follows a predetermined strategy or rule to track the performance of a market index, such as the S&P 500, or a specific sector, such as technology or health care. A passively managed fund does not involve active decision-making by the fund manager, who simply replicates the composition and weighting of the index or sector. A passively managed fund aims to match the return and risk of the index or sector, rather than outperform it. A passively managed fund typically has lower fees and expenses than an actively managed fund, as it requires less research, trading, and oversight.

An exchange traded fund (ETF) is a type of passively managed fund that trades on a stock exchange like a common stock. An ETF holds a basket of securities that mirrors an index or sector, and its price fluctuates throughout the day based on supply and demand. An ETF allows investors to gain exposure to a diversified portfolio of securities with low costs, high liquidity, and tax efficiency.

A commodity pool is a type of investment fund that invests in futures contracts or options on commodities, such as oil, gold, or wheat. A commodity pool is usually actively managed by a commodity trading advisor (CTA), who uses various strategies to generate returns from the price movements of commodities.

A hedge fund is a type of investment fund that employs sophisticated and often aggressive strategies to achieve high returns and reduce risk. A hedge fund is usually actively managed by a hedge fund manager, who has wide discretion and flexibility to use various instruments, such as derivatives, leverage, short selling, arbitrage, etc. A hedge fund is typically available only to accredited investors who meet certain income and net worth criteria.

A labour-sponsored investment fund (LSIF) is a type of investment fund that provides venture capital to small and medium-sized Canadian businesses, while offering tax benefits to investors. An LSIF is usually actively managed by a labour union or an organization affiliated with a labour union, who selects the companies to invest in based on their potential for growth and job creation.

Canadian Investment Funds Course, Chapter 4: Types of Investments1

According to the Canada Revenue Agency, taxable income is the amount used to calculate federal tax and provincial or territorial tax on the income tax return. Taxable income is calculated by subtracting tax deductions from total income. Total income is the sum of income from all sources, such as employment, business, investment, pension, and other income. Tax deductions are amounts that can be subtracted from total income to reduce the amount of income that is subject to tax. Some examples of tax deductions are RRSP contributions, child care expenses, moving expenses, and alimony payments. Tax credits are not subtracted from total income, but rather from the tax payable. Tax credits are amounts that can reduce the amount of tax owed or increase the amount of refund. Some examples of tax credits are basic personal amount, spouse or common-law partner amount, Canada workers benefit, and foreign tax credit.

Therefore, the correct answer is C. total income less tax deductions.

 1: Line 26000 – Taxable income - Canada.ca 2

D is correct because a passive portfolio management strategy is based on the assumption that the markets are efficient and that it is impossible or very difficult to consistently find mis-priced securities that can generate abnormal returns. A passive portfolio manager aims to replicate the performance of a market index or benchmark by holding a diversified portfolio of securities that mirrors the index or benchmark. A passive portfolio manager does not believe in using active strategies such as market timing, security selection, or sector rotation. The manager does not need to use benchmarks (A), as they are essential for measuring and evaluating the performance of a passive portfolio. The manager does not wish to create capital gains in the mutual fund by frequently buying and selling stocks (B), as this would incur higher transaction costs and taxes, and deviate from the index or benchmark. The manager does not believe he or she can outperform the market with his or her stock picking skills ©, as this would imply an active portfolio management strategy. References: Investment Funds in Canada (IFC) | Canadian Securities Institute