IFSE - CIFC - Unit 8 Latest Update Graded A

IFSE - CIFC - Unit 8 Latest Update Graded A Mutual Fund Corporation - investors are shareholders - board of directors governs the fund - board of directors are elected by the shareholders at the fund's annual general meeting Mutual Fund Trust - investors are unit-holders - no board of directors. Governed by trusts or trustees - unit-holders don't have authority to appoint trustees Mutual Funds Complex - mutual fund manager - portfolio manager - custodian - distributor - transfer agent - independent review committee Investment fund manager - aka mutual fund company - looks at the fund's objectives and selects a portfolio manager with related experience - name is disclosed in the prospectus Portfolio manager - responsible for the investment decisions of a fund, including purchasing and selling securities and determining the mix of assets - receives management fees - goal is to generate the best rate of return for the fund's investors while operating with the fund's objectives - name disclosed in prospectus Custodian - responsible for safekeeping the cash and securities belonging to the fund - responsible for holding income earned by the fund until it is reinvested or distributed to fund investors - their functions must be kept separate from those of the fund management company - must be either a chartered bank, trust company with equity no less than $10M, or affiliate of the first 2 Distributor - the sales and marketing arm of the mutual fund company responsible for bringing assets to the fund through sales and investors - sells units to investors and transmits redemption requests to the investment fund management company - as a dealing rep, you are part of the distribution network Transfer agent - this role is usually performed by a trust company - either will be the fund management company, custodian, or third party - name disclosed on prospectus - has records of unit holders and transfers of ownership Independent review committee - NI 81-107 requires all publicly offered mutual funds to have one - role is to oversee potential conflict of interest decisions involving the manager of a fund Net Asset Value Per Unit (NAVPU) - represents the price at which units are bought and sold on a particular day - fund manager's responsibility to calculate it, usually daily Valuation date - date on which earnings are allocated to an investor's account - requests must be received by 4 pm Eastern time Settlement date - you have until this date to provide payment - won't receive proceeds until trade date plus 3 (T+3), money market is T+1 Voluntary Accumulation Plan (VAP) - investor agrees to invest a predetermined amount on a regular basis - usually fulfill investment duties via a PAC Dollar-cost averaging - investors with a PAC can take advantage of this risk mitigation strategy - investors can avoid temptation of market timing - purchases are made despite market conditions Ratio Withdrawal Plan - investor receives cash flow based on a percentage of their portfolio's value (ie: 8%) - amount paid is calculated as a fixed percentage of the average daily NAVPU - ratio is flexible Fixed-dollar withdrawal plan - investor chooses to receive a fixed amount at a set frequency - same mitigation as dollar-cost averaging Series T - alternatives to SWPs - ex: Series T6 pays out annually 6% of year-end NAVPU - if a T4 fund portfolio only earns 4%, there is no return of capital Cost related to mutual funds 1. Management fees and operating expenses 2. Trailer fees 3. Loads or commissions Management Expense Ratio (MER) - the annual expenses incurred by a fund on a percentage basis, calculated as annual expenses of the fund divided by the net asset value of the fund; the result of this calculation is then divided by the number of shares outstanding - mutual funds are required to calculate it by reference of a financial statement for a financial year or an interim 6 month period - when mutual fund performance data is published, the rates of return reflect a fund's return after the MERs have been deducted Trailer fees - included in management fees portion of a fund's MER Short-term Trading Fees - to discourage short-term trading in mutual funds - usually defined by switching or redeeming within 30 to 90 days of purchase - fee is between 1-3% and paid directly to mutual fund Front-end sales charge - between 0 and 9% - paid from investor to distributor at time of purchase Deferred sales charge (DSC) - redemption charges that decline the longer an investor owns units - start at 6 or 7% and fall to zero over time (usually 7 years) - paid from investor to manager of fund Low-load sales charge - similar to DSC - lower redemption fees - shorter redemption schedules 10% free redemptions - once per year - for DSC units only - can be either switch to FE version of mutual fund, purchase other funds with same mutual fund company, transfer to other investment No-load fund a mutual fund in which the individual investor pays no commission or service fees Fee-based model - dealer charges a flat annual fee of an investor's assets Rights of investors - can withdraw from an agreement to buy mutual funds within 2 business days of receiving Fund Facts - can cancel a purchase within 48 hours of receiving confirmation of their order - can possibly get their money back if Fund Facts was never received - can make a claim for damages if Fund Facts was misleading Fund Facts Document - delivery is required under securities regulations (as of September 1, 2013) - provides investors with important information, written in plain language - can be used to determine appropriateness of a mutual fund purchase Simplified Prospectus - for a security to be offered for sale, this must be files and approved by the provincial regulators of those jurisdictions where the securities are to be sold - purpose is to give investors important information in a standard format to facilitate a decision wither to buy or sell units of the fund - must be provided to a client upon request Annual Information Form (AIF) - a document that contains information not included in a simplified prospectus or annual financial statements - must be provided to a client upon request Financial Statements - reports that summarize the financial condition and operations of a business - must be files annual and semi-annually Client name account - client is legal owner of the purchased mutual funds - LTA is not required but optional - client instructions are required - discretionary trading is NOT permitted Nominee name account - dealer is legal owner of purchased mutual funds - LTA is not required - client instructions are required - discretionary trading is NOT permitted Main types of non-registered accounts - cash accounts - margin accounts Registered Education Savings Plan (RESP) - a long-term, tax-sheltered savings plan to finance a child's post-secondary education - subscribers can contribute a lifetime maximum of $50,000 per beneficiary - contributions are NOT tax deductible Canada Education Savings Grant (CESG) - an incentive program for those investing in a Registered Education Savings Plan (RESP) whereby the federal government will make a matching grant of 20% up to a maximum of $500 (up to lifetime limit of $7,200) per year of the first $2,500 contributed each year to the RESP of a child under age 17. - federal government will pay up to max of $1,000 per year per beneficiary. - if you cannot make a contribution or do not receive full CESG in any given year, you may be able to catch up in future years Additional Canada Education Savings Grant (A-CESG) - federal government offers these additional payments on contributions made by families with adjusted family net income below a certain threshold income - payable on the first $500 of annual contributions made within the year - included in CESG lifetime maximum of $7,200 Canada Learning Bond (CLB) - additional money offered by the federal government for families that receive the National Child Benefit Supplement (NCBS) - max that a beneficiary can receive is $2,000, $500 immediately then $100 each year until age 15 - Extra $25 will be given to help cover cost of opening RESP - Beneficiary must be born after December 31, 2003 RESP withdrawals - if beneficiary does not go to school immediately, money in the plan can be transferred to sibling RESP, except CLB. - if transfer cannot be done, subscriber contributions will be returned and becomes taxable income, CESG back to government - RESPs remain open for 36 years so it's ok to wait 2 types of RESPs - individual or family self-directed plans - group or scholarship plans Registered Disability Savings Plan (RDSP) - plan that is intended to help parents and others save for the financial security of an individual who is eligible for the Disability Tax Credit (prolonged impairment) - contributions are NOT tax deductible - anyone can make a contribution with written permission of the plan holder - no annual limit, lifetime contribution limit is $200,000 - contributions may be made until end of year beneficiary is 59 - withdrawals must begin by the end of the year when beneficiary turns 60 Tax Free Savings Account (TFSA) - a registered investment account that allows you to purchase investments with after-tax dollars, without attracting any tax payable on your investment growth - must be 18 or 19 (depends on province) to open this account - original limit was $5,000 annually (2009) - current limit is $5,500 (2013) - 1% penalty charged every month account is over-contributed - contributions are NOT tax deductible but - may contribute amounts from previous year that weren't contributed