Canadian Securities Course (CSC) Level 2 Practice Exam

Which factor is associated with mutual fund management?

1. Advisor compensation

2. Transparency

3. Cash drag flow

4. Distribution

The correct answer is: Transparency

The correct answer is transparency. In the context of mutual fund management, transparency refers to the clear and open communication of a fund's operations, performance, and fees to its investors. This includes providing detailed information about the underlying investments, fund expenses, and performance metrics, which helps investors make informed decisions. The importance of transparency is underscored by regulatory requirements that mandate mutual funds to disclose pertinent information regularly. This empowers investors to understand where their money is invested and how it is being managed, facilitating trust between fund managers and investors. While advisor compensation, cash drag flow, and distribution are important aspects of mutual fund operations, they do not directly relate to the overall management of the fund in terms of the clarity and openness provided to investors. Advisor compensation focuses more on how advisors are paid for their services, cash drag flow pertains to the inefficiencies related to holding liquid assets, and distribution concerns how mutual funds are marketed and sold to investors. These elements play roles in the broader mutual fund ecosystem but are not core components of management like transparency is.