IFIC Exam (Chapter 12) Questions with
Complete Answers 2026/2027 Updated.
Equity Mutual Funds - Answer -invest in the common and preferred shares of publicly-traded
companies.
-have the goal of earning capital gains, sometimes with a current dividend income component.
-the riskiest of the three basic mutual fund types—money market, fixed-income, and equity
funds
-suitable primarily for clients with longer investment time horizons.
-make no specific attempt to preserve capital
-verage return performance of equity funds parallels that of the TSX Index
Canadian Equity Mutual Fund Categories - Answer -standard equity
-equity growth
-equity index
Standard Equity Fund - Answer -seeks to earn some combination of dividend income and
capital gains from investment in Canadian common stocks.
-this objective appears to be similar to that of a preferred dividend fund. The difference
between the two is that an equity fund usually has a much stronger capital gains focus.
Conservative Equity Funds - Answer -hold common shares of large capitalization firms with
strong dividend records. The capital appreciation potential for this type of shares is, however,
limited.
Equity Growth Funds - Answer -the investment objective of an equity growth fund is capital
gains. Some dividend income may be earned, but probably not much (these companies tend to
keep their profits as retained earnings, reinvesting to continue to grow)
-seek out smaller firms that do not have the financial ability to pay dividends. They need all the
funds they can obtain in order to grow.
Equity Growth Fund Risks - Answer -smaller, growing firms have a greater potential for failure
-these growth firms often trade at very high price/earnings ratios
-share price volatility
Small Cap Funds - Answer -an aggressive growth fund that invests exclusively in smaller, lesser-
known firms that are expected to grow at a faster rate than normal growth companies
, -"Small cap" stands for small capitalization, which means that the market value of the equity of
the firm is relatively low, probably because the firm itself is small.
-rarely pays dividends.
-aggressive and riskier than regular growth funds.
-return is expected to be primarily from capital gains.
-typically firms making and marketing new types of products for which market demand may be
difficult to determine
-a type of specialty fund
Market Capitalization Calculation - Answer -Market Capitalization = Number of shares
outstanding × Current Market Share Price
Conservative Equity Growth Funds - Answer -seek out small, growth-oriented firms that have
higher market capitalizations than small cap funds
Equity Index Fund - Answer -has the goal of replicating the movements of a market index.
-in Canada, that particular index is often the S&P/TSX Composite Index. Similar weightings to
the index it tries to replicate
-index funds generally do not hold all of the stocks represented in the index they try to replicate
-appeal to investors who believe in market efficiency
-lower management fees
-equity index funds typically generate capital gains, and are also likely to earn a certain amount
of dividend income (can also earn interest income). This is not always the case, however. Some
equity index funds do not own equities at all. Instead, they hold risk free investments like T-bills
and purchase derivatives that closely replicate the index return.
Mutual Funds and Derivatives - Answer -within specified guidelines, mutual funds are
permitted to use derivative securities
-equity funds also are allowed to take speculative positions on stock market indexes. Speculative
positions may have an underlying value of not more than 10% of the value of the mutual fund's
portfolio.
Difference Between a Hedger and Speculator - Answer -a hedger uses derivatives as a kind of
insurance policy against the decline of the portfolio.
-a speculator is simply taking a bet on the future movement of the market
Responsible Investment - Answer -refers to the incorporation of environmental, social and
governance (ESG) factors
Complete Answers 2026/2027 Updated.
Equity Mutual Funds - Answer -invest in the common and preferred shares of publicly-traded
companies.
-have the goal of earning capital gains, sometimes with a current dividend income component.
-the riskiest of the three basic mutual fund types—money market, fixed-income, and equity
funds
-suitable primarily for clients with longer investment time horizons.
-make no specific attempt to preserve capital
-verage return performance of equity funds parallels that of the TSX Index
Canadian Equity Mutual Fund Categories - Answer -standard equity
-equity growth
-equity index
Standard Equity Fund - Answer -seeks to earn some combination of dividend income and
capital gains from investment in Canadian common stocks.
-this objective appears to be similar to that of a preferred dividend fund. The difference
between the two is that an equity fund usually has a much stronger capital gains focus.
Conservative Equity Funds - Answer -hold common shares of large capitalization firms with
strong dividend records. The capital appreciation potential for this type of shares is, however,
limited.
Equity Growth Funds - Answer -the investment objective of an equity growth fund is capital
gains. Some dividend income may be earned, but probably not much (these companies tend to
keep their profits as retained earnings, reinvesting to continue to grow)
-seek out smaller firms that do not have the financial ability to pay dividends. They need all the
funds they can obtain in order to grow.
Equity Growth Fund Risks - Answer -smaller, growing firms have a greater potential for failure
-these growth firms often trade at very high price/earnings ratios
-share price volatility
Small Cap Funds - Answer -an aggressive growth fund that invests exclusively in smaller, lesser-
known firms that are expected to grow at a faster rate than normal growth companies
, -"Small cap" stands for small capitalization, which means that the market value of the equity of
the firm is relatively low, probably because the firm itself is small.
-rarely pays dividends.
-aggressive and riskier than regular growth funds.
-return is expected to be primarily from capital gains.
-typically firms making and marketing new types of products for which market demand may be
difficult to determine
-a type of specialty fund
Market Capitalization Calculation - Answer -Market Capitalization = Number of shares
outstanding × Current Market Share Price
Conservative Equity Growth Funds - Answer -seek out small, growth-oriented firms that have
higher market capitalizations than small cap funds
Equity Index Fund - Answer -has the goal of replicating the movements of a market index.
-in Canada, that particular index is often the S&P/TSX Composite Index. Similar weightings to
the index it tries to replicate
-index funds generally do not hold all of the stocks represented in the index they try to replicate
-appeal to investors who believe in market efficiency
-lower management fees
-equity index funds typically generate capital gains, and are also likely to earn a certain amount
of dividend income (can also earn interest income). This is not always the case, however. Some
equity index funds do not own equities at all. Instead, they hold risk free investments like T-bills
and purchase derivatives that closely replicate the index return.
Mutual Funds and Derivatives - Answer -within specified guidelines, mutual funds are
permitted to use derivative securities
-equity funds also are allowed to take speculative positions on stock market indexes. Speculative
positions may have an underlying value of not more than 10% of the value of the mutual fund's
portfolio.
Difference Between a Hedger and Speculator - Answer -a hedger uses derivatives as a kind of
insurance policy against the decline of the portfolio.
-a speculator is simply taking a bet on the future movement of the market
Responsible Investment - Answer -refers to the incorporation of environmental, social and
governance (ESG) factors
