Canadian Securities Course (CSC) Level 2 Practice Exam

Which factor plays a role in determining the mutual fund charges?

1. Annual return

2. Type

3. Switching fees

4. Trailer fees

The correct answer is: Type

The type of mutual fund is indeed a crucial factor in determining the mutual fund charges. Different types of mutual funds, such as equity funds, bond funds, balanced funds, or specialty funds, typically come with varying management fees and expense ratios. For example, actively managed funds generally have higher fees than passively managed index funds, reflecting the differing investment strategies and levels of management required. While other factors like switching fees and trailer fees are related to costs associated with mutual funds, they stem from specific circumstances associated with the fund's structure or distribution agreements rather than the inherent features of the fund itself. Annual return is an outcome rather than a fee structure determinant, as it reflects performance rather than the costs involved in managing the fund. Therefore, the type of mutual fund fundamentally influences the charges incurred by investors.