IFC Exam Dumps - CSI Canadian Investment Funds Questions and Answers

A LIF is a type of registered retirement income fund that is used to hold and pay out locked-in pension funds. A LIF has both a minimum and a maximum withdrawal limit for each calendar year, which are determined by the federal or provincial pension legislation, the age of the annuitant, and the value of the fund. The minimum withdrawal limit is similar to that of a RRIF, but the maximum withdrawal limit is intended to ensure that the LIF provides income for the lifetime of the annuitant123

References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.4: Life Income Fund (LIF)4 and web search results from search_web(query="maximum withdrawal limit for LIF RRSP RRIF DPSP")123

4: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf

A RRIF is a retirement income option that allows you to withdraw income from the savings accumulated under your RRSP. You cannot contribute new amounts to a RRIF. You can only transfer funds from your RRSP or another RRIF to your RRIF.

References = IFSE CIFC Module 6: Registered Plans, page 6-11. Can I deposit money in an RRIF? | Fonds FTQ

Explicit costs of operating a mutual fund include:

Management fees,

Operating expenses,

Custodial fees,

Record-keeping,

Marketing/distribution.

These costs are embedded in the MER (Management Expense Ratio) and are borne by the investors, as they reduce fund returns.

The manager (B) oversees operations but does not personally cover costs.

The sponsor (C) establishes the fund, and the distributor (D) sells units, but neither pays the ongoing operating costs.

When an investor purchases a mutual fund, the price is based on the next NAVPS (Net Asset Value Per Share) calculated after the order is entered. Orders placed before 4:00 p.m. ET are priced at that day’s closing NAV; orders after 4:00 p.m. are priced using the next business day’s NAV.

Since the order was placed at 2:30 p.m. ET, today’s NAV applies.

An eligible dividend is a type of dividend that is paid by a Canadian corporation that meets certain criteria and is eligible for the enhanced dividend tax credit. The dividend tax credit reduces the amount of tax payable on dividends by providing a credit against the tax liability. An eligible dividend has a higher gross-up rate and a higher dividend tax credit rate than a non-eligible dividend, which means that it results in a lower effective tax rate. A capital dividend is a type of dividend that is paid from the capital gains realized by a corporation and is tax-free to the shareholder. However, a tactical asset allocation fund is unlikely to pay capital dividends, as they are usually reserved for private corporations. A capital gain is the profit from selling an asset at a higher price than its purchase price. Only 50% of the capital gain is taxable, which means that it has a lower effective tax rate than interest income, which is fully taxable. However, a capital gain distribution from a mutual fund is not the same as a capital gain from selling the mutual fund units. A capital gain distribution is paid when the fund realizes a capital gain from selling its underlying assets, and it is taxable in the year it is received, regardless of whether the shareholder sells the fund units or not. Therefore, it does not benefit from the deferral of tax that occurs when the shareholder sells the fund units at a later date. An interest distribution is paid when the fund earns interest income from its underlying assets, such as bonds or money market instruments. Interest income is fully taxable at the marginal tax rate, which means that it has the highest effective tax rate among the four types of distributions.

To compare the amount of tax payable for each type of distribution, we can use the following formula:

Tax=(Distribution×Gross−up)×MarginalTaxRate−(Distribution×Gross−up)×DividendTaxCreditRate

For simplicity, we assume that Davis receives $100 of each type of distribution and that he does not have any other income or deductions. We also ignore any provincial taxes or credits. Using the formula, we can calculate the tax payable for each type of distribution as follows:

Capital Dividend: Tax=(100×0)×0.26−(100×0)×0=0

Capital Gain: Tax=(100×0.5)×0.26−(100×0.5)×0=13

Eligible Dividend: Tax=(100×1.38)×0.26−(100×1.38)×0.15=10.14

Interest: Tax=(100×1)×0.26−(100×1)×0=26

Therefore, an eligible dividend would result in the lowest amount of tax payable, followed by a capital gain, a capital dividend, and an interest distribution.

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.2: Taxation of Investment Income, page 7-41

Eligible Dividends Definition - Investopedia2

Capital Dividend Definition - Investopedia3

Capital Gain Distribution Definition - Investopedia4

Participating preferred shares are a type of preferred shares that offer its shareholders the opportunity to receive additional dividends if the company’s profit exceeds a stated level. These dividends are paid in addition to the fixed dividends that are normally paid to preferred shareholders. Participating preferred shares allow shareholders to benefit from both fixed and variable income streams, depending on the company’s performance. References: Participating Preferred Stock Definition - Investopedia, Preferred Shares Explained | TD Direct Investing

The availability bias occurs when investors rely on easily available or recent information rather than a thorough analysis. In this case, the investor bases decisions on internet recommendations and stock tips, believing they are accurate, instead of analyzing fundamentals. This clearly matches availability bias.

Endowment bias applies when investors overvalue what they already own.

Representativeness bias applies when investors judge outcomes by stereotypes or past patterns.

Overconfidence refers to excessive faith in one’s own knowledge.

Thus, the behavioural bias here is Availability .

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

Thomas must contribute to CPP based on his pensionable earnings, which are his income from employment or self-employment that are subject to CPP. However, he can deduct a basic exemption amount from his pensionable earnings, which is $3,500 for the year. Therefore, his contributory earnings are:

16,000−3,500=12,500

The CPP contribution rate is 5.95% for employees and self-employed workers. Therefore, Thomas must contribute:

12,500×5.95%=743.75

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 6: Registered Plans, Section 6.3: Canada Pension Plan (CPP), page 6-101

Canada Pension Plan - How much could you receive - Canada.ca2