Managed Products and Structured Products
What this domain tests
Pooled and packaged investments: how they are structured, priced, regulated and compensated. Expect questions comparing mutual funds, ETFs, segregated funds, hedge funds and principal-protected notes on cost, liquidity and guarantees.
Core rules
- Mutual funds are open-end; units are created and redeemed at net asset value. Closed-end funds trade on an exchange and can trade at a premium or discount to NAV. ETFs trade intraday and use authorized participants to create and redeem units in kind, keeping price close to NAV.
- NI 81-101 governs simplified prospectuses and the Fund Facts document, which must be delivered before or at the point of sale. NI 81-102 governs investment restrictions and fund operations.
- MER includes the management fee plus operating expenses and taxes; it is embedded in NAV, not billed separately.
- Segregated funds are insurance contracts with maturity and death guarantees (commonly 75% or 100% of deposits, after a 10-year hold), creditor protection in some circumstances, and higher cost.
- Structured products such as principal-protected notes and index-linked GICs pair a zero-coupon bond or deposit with an option to deliver partial or full index participation.
- Deferred sales charges were banned for mutual funds effective June 1, 2022.
Worked example
$100,000 is invested for 10 years at a 7% gross return. Fund A has a 2.5% MER, Fund B a 1.0% MER.
- Fund A net growth: 1.045^10 = 1.5530 → $155,297
- Fund B net growth: 1.060^10 = 1.7908 → $179,085
- Cost of the higher fee: $23,788 A 1.5 percentage-point fee difference consumed roughly 24% of the ending value. Fee questions are almost always about compounding, not the annual percentage.
Traps
- Subtracting the MER from the return and then compounding the principal separately, which understates the drag.
- Assuming segregated fund guarantees are free - the MER is higher to fund them.
- Confusing ETF market price with NAV; the creation/redemption mechanism is what keeps them aligned.
Key points
- Mutual funds transact at NAV; ETFs trade intraday and are arbitraged to NAV by authorized participants.