Canadian Securities Course (CSC) Level 2 Practice Exam

Which statement accurately describes mutual funds in the text provided?

1. Offer tax advantages over mutual funds of ETFs

2. Trade at different NAVPS

3. Have higher embedded fees compared to ETFs

4. Trade on the primary market only

The correct answer is: Have higher embedded fees compared to ETFs

The statement that accurately describes mutual funds is that they have higher embedded fees compared to ETFs. Mutual funds typically charge higher management fees than exchange-traded funds (ETFs), due to the active management style of many mutual funds, as well as additional costs associated with marketing and servicing. These fees can impact overall returns for investors over time. In contrast, the other statements do not hold true. For example, mutual funds and ETFs may offer varying tax implications depending on the specific fund structure and individual investment situations, but it is not accurate to categorically state that mutual funds offer tax advantages over ETFs. Furthermore, while mutual funds are priced at their net asset value per share (NAVPS) at the end of the trading day, ETFs trade throughout the day at market prices that can differ from their NAVPS due to supply and demand dynamics. Lastly, while mutual funds are primarily bought and sold through the fund company or intermediaries, therefore only trading on the primary market, ETFs are traded on the secondary market through various stock exchanges, offering more liquidity and real-time pricing.