Canadian Securities Course (CSC) Level 2 Practice Exam

Which statement best describes mutual funds of ETFs?

1. Contain a portfolio of individual securities

2. Have higher MER compared to ETFs

3. Do not offer preauthorized contributions

4. Can only be traded in single unit increments

The correct answer is: Contain a portfolio of individual securities

The statement that best describes mutual funds compared to ETFs is that they contain a portfolio of individual securities. Both mutual funds and ETFs are investment vehicles that pool money from investors to invest in a diverse selection of securities, such as stocks, bonds, or other assets. They provide investors with diversification, professional management, and exposure to a wide range of investments within a single fund. While it's true that mutual funds and ETFs have portfolios of individual securities, the way they operate and trade differs significantly. This leads to other nuances in how they manage costs, trading, and contributions. For instance, mutual funds typically do have higher management expense ratios (MER) than ETFs, affecting the cost structure over time. Moreover, mutual funds generally allow for more flexible contributions, often accepting preauthorized contributions, and unlike ETFs, they do not trade on an exchange in real-time, but rather at the end of the trading day, which makes the trading process and increment sizing quite different. Thus, the statement about containing a portfolio of individual securities accurately highlights a fundamental characteristic shared between mutual funds and ETFs, making it the best description among the options presented.