CIFC IFSE Institute Canadian Investment Funds Course Exam Free Practice Exam Questions (2025 Updated)

Bonds and debentures are both types of debt instruments that can be issued by corporations or governments to raise capital. However, they differ in the way they are secured. Bonds are backed by the specific assets of the issuer, such as property, equipment, or inventory. This means that if the issuer defaults on the bond payments, the bondholders have a claim on those assets and can sell them to recover their money. Debentures, on the other hand, are not secured by any real assets or collateral. They are only backed by the general creditworthiness and reputation of the issuer. This means that if the issuer defaults on the debenture payments, the debenture holders have no recourse to any specific assets and have to rely on the issuer’s ability to pay from its future earnings or liquidation proceeds.

References: Canadian Investment Funds Course, Unit 5, Section 5.1

Whether the couple saves on income tax will be dependent on Minu’s marginal tax rate. Pension income splitting is a tax planning strategy that allows a spouse or common-law partner who receives eligible pension income to allocate up to 50% of that income to their spouse or common-law partner1. This may result in tax savings if the transferring spouse or common-law partner is in a higher tax bracket than the receiving spouse or common-law partner1. The tax savings depend on the difference between the marginal tax rates of the spouses or common-law partners1. The other statements are incorrect. Minu will not be exposed to a pension adjustment (PA) if she receives income from Saheed’s pension. A PA is a measure of the value of benefits accrued in a registered pension plan or deferred profit sharing plan during a calendar year2. It reduces the RRSP contribution room of the plan member, not the spouse or common-law partner who receives part of their pension income2. Pension income splitting is not a form of tax evasion and is not illegal based on income tax legislation. It is a legitimate way to reduce taxable income and taxes payable by shifting income from a higher-income spouse or common-law partner to a lower-income spouse or common-law partner1. Pension income splitting may change the total amount of income taxes paid by the couple, depending on their marginal tax rates. If the transferring spouse or common-law partner is in a higher tax bracket than the receiving spouse or common-law partner, pension income splitting may lower their combined taxes payable1. However, if they are in the same tax bracket, pension income splitting may not have any effect on their taxes payable1. References: Pension income splitting, Pension adjustment

D is correct because a passive portfolio management strategy is based on the assumption that the markets are efficient and that it is impossible or very difficult to consistently find mis-priced securities that can generate abnormal returns. A passive portfolio manager aims to replicate the performance of a market index or benchmark by holding a diversified portfolio of securities that mirrors the index or benchmark. A passive portfolio manager does not believe in using active strategies such as market timing, security selection, or sector rotation. The manager does not need to use benchmarks (A), as they are essential for measuring and evaluating the performance of a passive portfolio. The manager does not wish to create capital gains in the mutual fund by frequently buying and selling stocks (B), as this would incur higher transaction costs and taxes, and deviate from the index or benchmark. The manager does not believe he or she can outperform the market with his or her stock picking skills ©, as this would imply an active portfolio management strategy. References: Investment Funds in Canada (IFC) | Canadian Securities Institute

A material conflict of interest is a situation where a dealing representative or a mutual fund dealer has an interest that may affect their ability to act in the best interest of their clients, or that may influence their judgment or behaviour. A material conflict of interest may arise from various sources, such as compensation arrangements, personal or business relationships, or ownership interests. In this case, Manuel has described some information that may indicate a material conflict of interest, such as:

•His dealer represents many different mutual fund families, including their own: CF Group of Funds. This may create a bias or incentive for Manuel to recommend the CF equity fund over other funds that may be more suitable for his client, Stefania.

•The accounts are set-up in nominee name, which means that the dealer is the registered owner of the mutual funds and holds them in trust for the client. This may affect the client’s rights and benefits as the beneficial owner of the funds, such as voting rights, transferability, or access to information.

•The mutual funds are not transferable, which means that the client cannot move them to another dealer or fund family without selling them and incurring fees or taxes. This may limit the client’s flexibility and choice, and create a lock-in effect for the dealer.

•The fund does pay trailer fees, which are ongoing commissions paid by the fund manager to the dealer for the services and advice provided to the client. This may create a conflict of interest for Manuel, as he may receive a portion of the trailer fees as part of his compensation. This may influence his recommendation of the fund, as he may benefit from the client’s continued investment in the fund.

Manuel should disclose these potential material conflicts of interest to his client, Stefania, and explain how they may affect his recommendation of the CF equity fund. He should also ensure that his recommendation is based on the client’s needs, objectives, risk tolerance, and time horizon, and that he provides the client with the necessary information and documents, such as the fund facts, to make an informed decision.

References = Canadian Investment Funds Course, Unit 7: The Regulatory Environment, Lesson 1: The Regulatory Framework, Section 7.1.3: Material Conflicts of Interest1; CIFC prepkit, Chapter 7: The Regulatory Environment, Question 7.1.3 2

The Do Not Call List (DNCL) is a national registry of personal telephone numbers that consumers can register to reduce the number of unsolicited telemarketing calls they receive. Telemarketers are required to subscribe to the DNCL and avoid calling the numbers on the list, unless they have an exemption. One of the exemptions is for existing business relationships, which means that a telemarketer can call a consumer who has purchased a product or service from them or their employer within the last 18 months, or who has made an inquiry or application within the last six months. Therefore, Kendrick is still eligible to contact Chandra, who is an existing client of Oak Solid Financial, even if she is on the DNCL registry. However, Kendrick must respect Chandra’s right to request that he stop calling her and remove her number from his contact list.

References: Canadian Investment Funds Course, Chapter 1: The Canadian Financial Services Industry1, National Do Not Call List - Canada.ca2

Shirley’s risk profile is the primary consideration for Jonathan when making an investment recommendation. Risk profile is a measure of how much risk an investor is willing and able to take on in their portfolio. It is determined by factors such as age, income, net worth, investment objectives, time horizon, and personal preferences. It is essential for a dealing representative to assess the risk profile of their client before recommending any investment products or strategies, as they have a fiduciary duty to act in the best interest of their client and ensure that their recommendations are suitable for their client’s needs and goals. The other variables are also important, but they are secondary to the risk profile. References: [Risk Profile], [Know Your Client (KYC)]

The right of withdrawal is a statutory right that allows investors to cancel their purchase order of mutual funds within a specified period of time and receive a refund of the amount they paid. The right of withdrawal is also known as the cooling-off period or the rescission right. The right of withdrawal for investors can be different depending on which province (or territory) the fund was purchased within, as each jurisdiction has its own securities legislation and regulations that govern the mutual fund industry. For example, in Ontario, the right of withdrawal is two business days after receiving the simplified prospectus or the fund facts document, whichever is later1. In Quebec, the right of withdrawal is two business days after receiving the simplified prospectus or confirmation of purchase, whichever is later2. In British Columbia, the right of withdrawal is 48 hours after receiving confirmation of purchase3. Therefore, Mariana may still be able to exercise her right of withdrawal, depending on where she bought her mutual funds and when she received the required documents. References:

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 3: The Regulatory Environment, Section 3.2: The Right of Withdrawal, page 3-54

Ontario Securities Commission - Mutual Funds - Buying and Selling1

Autorité des marchés financiers - Mutual Funds - Buying and Selling2

British Columbia Securities Commission - Mutual Funds - Buying and Selling3

A passively managed fund is a type of investment fund that follows a predetermined strategy or rule to track the performance of a market index, such as the S&P 500, or a specific sector, such as technology or health care. A passively managed fund does not involve active decision-making by the fund manager, who simply replicates the composition and weighting of the index or sector. A passively managed fund aims to match the return and risk of the index or sector, rather than outperform it. A passively managed fund typically has lower fees and expenses than an actively managed fund, as it requires less research, trading, and oversight.

An exchange traded fund (ETF) is a type of passively managed fund that trades on a stock exchange like a common stock. An ETF holds a basket of securities that mirrors an index or sector, and its price fluctuates throughout the day based on supply and demand. An ETF allows investors to gain exposure to a diversified portfolio of securities with low costs, high liquidity, and tax efficiency.

A commodity pool is a type of investment fund that invests in futures contracts or options on commodities, such as oil, gold, or wheat. A commodity pool is usually actively managed by a commodity trading advisor (CTA), who uses various strategies to generate returns from the price movements of commodities.

A hedge fund is a type of investment fund that employs sophisticated and often aggressive strategies to achieve high returns and reduce risk. A hedge fund is usually actively managed by a hedge fund manager, who has wide discretion and flexibility to use various instruments, such as derivatives, leverage, short selling, arbitrage, etc. A hedge fund is typically available only to accredited investors who meet certain income and net worth criteria.

A labour-sponsored investment fund (LSIF) is a type of investment fund that provides venture capital to small and medium-sized Canadian businesses, while offering tax benefits to investors. An LSIF is usually actively managed by a labour union or an organization affiliated with a labour union, who selects the companies to invest in based on their potential for growth and job creation.

References: Canadian Investment Funds Course, Chapter 4: Types of Investments1

 A fund of funds is a mutual fund that invests in other mutual funds. This means that there are two levels of management fees: one for the fund of funds itself and one for the underlying funds. Therefore, fund of funds have higher fees than traditional mutual funds that invest directly in securities. References: Canadian Investment Funds Course (CIFC) | IFSE Institute, Unit 6, Lesson 2

A bond fund is a mutual fund that invests primarily in bonds and other debt securities. Income from a bond fund will primarily be interest but may also be capital gains if the fund sells bonds that have appreciated in value. Bond funds are not very low risk because they can fluctuate in value depending on interest rate changes and credit risk. If interest rates rise, the value of a bond fund will tend to fall because existing bonds will become less attractive than new bonds with higher rates. Securities regulation does not specify that bond funds must invest in investment grade bonds, although some funds may have this as an investment objective or policy. References: What Is a Bond Fund?

A Trusted Contact Person (TCP) is someone that an investor authorizes their brokerage firm to contact in limited circumstances, such as if the broker has trouble reaching the investor or has a reasonable belief that the investor’s account may be exposed to possible financial exploitation. A TCP does not have the authority to make changes to the investor’s account or direct trading, unlike a Power of Attorney (POA). A TCP also does not have the power to place a temporary hold on the investor’s account, which is a decision made by the brokerage firm. Therefore, C is the correct answer. References: What is a Trusted Contact Person and why you should name one, Do You Need A ‘Trusted Contact’ To Help Protect You?, Investor Bulletin: Please Consider Adding a Trusted Contact Person to Your Account

A is correct because retractable preferred shares are a type of preferred shares that give the holder the option to sell the shares back to the issuer at a predetermined price and within a specified time. This feature provides the holder with more flexibility and protection against interest rate fluctuations. Participating preferred shares (B) are a type of preferred shares that give the holder the right to receive additional dividends if the issuer’s earnings exceed a certain level. Convertible preferred shares © are a type of preferred shares that give the holder the option to convert the shares into common shares of the issuer at a predetermined ratio and price. Redeemable preferred shares (D) are a type of preferred shares that give the issuer the option to buy back the shares from the holder at a predetermined price and within a specified time. References: Canadian Investment Funds Course (CIFC) | IFSE Institute

A put option is a contract that gives the buyer the right, but not the obligation, to sell an underlying stock at a specified price (the strike price) within a specified time period (the expiration date). The seller of a put option is obligated to buy the stock if the buyer exercises the option. Patrick can purchase put options for the fund’s existing assets, which means he can lock in a minimum selling price for his stocks in case the market value drops below the strike price. This way, he can protect against potential losses and hedge his portfolio against market risk. References: What Is a Put Option and How to Use It With Example - Investopedia, How to Hedge With Stock Index Futures - Investopedia

One of the main reasons for holding bonds in a mutual fund portfolio is to generate regular interest income, which can be distributed to the investors as cash or reinvested in more units of the fund. Bonds are debt securities that pay a fixed or variable rate of interest, called the coupon, to the bondholders until the maturity date, when the principal amount is repaid. The interest income from bonds can provide a steady source of cash flow for the fund and its investors, especially in low-interest-rate environments or when other sources of income, such as dividends or capital gains, are scarce or uncertain

The Fund Facts document is a summary disclosure document that highlights key information about a mutual fund or an exchange-traded fund (ETF), such as the performance history, investments, fees, and risks. According to the Point of Sale (POS) disclosure rules, a Dealing Representative must provide and explain the Fund Facts document to the client before accepting an order to buy or switch a fund. This allows the client to make an informed investment decision and to know their rights.

References = Fund Facts | AMF - Autorité des marchés financiers, Fund Facts/ETF Facts - Fidelity, Understanding Fund Facts | GetSmarterAboutMoney.ca, IFSE CIFC Module 2: The Investment Industry, page 2-16.

While comparing Fund Facts of the different mutual funds, Simone points out that not only are the fund management expenses different but so are the investor profiles for each fund. This behaviour from Simone is ethical because it shows that she is providing accurate and complete information to Pierre and helping him make an informed decision based on his personal circumstances and objectives4. Fund Facts is a document that summarizes key information about a mutual fund, such as its investment objectives, risks, fees, performance history, and investor rights5. By comparing Fund Facts of different mutual funds, Simone can help Pierre understand how each fund differs in terms of its suitability, costs, and potential returns. The other behaviours from Simone are unethical because they do not serve Pierre’s best interests or comply with professional standards. Simone’s ability to keep her knowledge current on competitors’ investment offerings does not necessarily show that she is putting her client’s interest first. She may have other motives for researching other funds, such as trying to persuade Pierre to stay with her dealer’s funds or finding new opportunities for herself4. Knowing Pierre does not like that her dealer’s funds have trailer fees, she chooses not to discuss the relationship between trailer fees and MER while making comparisons. This behaviour is unethical because it is misleading and omits relevant information that Pierre should know before investing4. Trailer fees are fees paid by the fund manager to the dealer for the ongoing services provided by the dealer and its advisors to unitholders5. Trailer fees are part of the management expense ratio (MER), which is the total cost of running and distributing a fund expressed as a percentage of its assets5. Trailer fees and MERs affect the net returns of a fund and may create conflicts of interest between the advisor and the client5. When comparing her dealer’s own mutual funds to the one Pierre discovered, Simone emphasizes the importance of similar net rates of return and minimizes the significance of management expense ratios (MERs). This behaviour is unethical because it is biased and does not present a balanced view of the pros and cons of each fund4. Net rates of return are not the only factor to consider when evaluating a fund’s performance. MERs are also important because they reduce the fund’s gross returns and may indicate how efficiently the fund is managed5. A fund with a lower MER may have an advantage over a fund with a higher MER, all else being equal5. References: Unit 2: Know Your Client, What’s a good MER fee plus 3 strategies to avoid high fees - Bellvest

Disclosure documents are documents that provide information about a mutual fund’s features, risks, performance, fees, and expenses to investors and regulators. Disclosure documents are required by securities laws and must be prepared and filed by the fund manager in accordance with the prescribed rules and standards. Disclosure documents relating to mutual funds include the following:

Statement of net assets: This is a document that shows the value of the fund’s assets and liabilities as of a specific date. It also shows the net asset value per unit (NAVPU) of the fund, which is the price at which investors can buy or sell units of the fund. The statement of net assets is part of the fund’s financial statements, which are prepared and filed semi-annually and annually.

Annual information form (AIF): This is a document that provides additional information about the fund that is not included in the simplified prospectus or the fund facts. The AIF includes information such as the fund’s history, organization, management, governance, policies, risks, conflicts of interest, fees, expenses, taxation, and legal matters. The AIF is prepared and filed annually.

Management reports of fund performance (MRFP): These are documents that provide information about the fund’s financial performance, portfolio composition, risk profile, and management expenses. The MRFPs are prepared by the fund manager and filed semi-annually and annually. The MRFPs include sections such as financial highlights, past performance, summary of investment portfolio, management discussion of fund performance, and financial statements.

References: Canadian Investment Funds Course, Chapter 6: Fund Operations and Regulations1

Government of Canada Bonds are fixed income securities issued by the federal government that pay a fixed rate of interest (coupon) and return the principal amount (par value) at maturity. They are considered low risk investments, as they are backed by the full faith and credit of the government. They also provide regular income to investors, as they pay interest semi-annually. For Sheldon, who has a low risk profile and an investment objective of receiving regular income, 3% Government of Canada Bonds at par would be an appropriate investment recommendation, as they would match his time horizon of 5 years and provide him with a stable and predictable income stream. The other options are not suitable for Sheldon, as they involve higher risk, volatility, or complexity.

References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 2: Fixed Income Securities, Section 5.2.1: Government Bonds1; CIFC prepkit, Chapter 5: Types of Investments, Question 5.2.1 2

According to the Canadian Investment Funds Course, inflation is the general increase in the prices of goods and services over time. Inflation reduces the purchasing power of money, meaning that a dollar can buy less in the future than it can today. Inflation also affects the returns of fixed income investments, such as bonds, which pay a fixed amount of interest and principal. If inflation is higher than expected, the real rate of return (the nominal rate minus inflation) of a bond will be lower than anticipated.

In this case, Pippa purchased a 15-year bond with a 7% coupon rate at the time of issuance. The bond is due to mature later this year. The general interest rate climate remained stable for the first 13 years of the bond’s term. However, especially over the past 18 months, both inflation and general interest rates have increased more than expected. This means that Pippa will receive less purchasing power from her bond’s interest and principal payments than she expected when she bought the bond. She will not experience a capital loss, as she will receive the full face value of $5,000 at maturity. She will also not benefit from a higher real rate of return, as inflation erodes the value of her fixed payments. She will not receive any capital appreciation, as the bond’s price does not change once it is held to maturity.

Therefore, the correct answer is C. The return of investment capital will have lower purchasing power than prior to investing.

References: 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 4: Fixed Income Securities)