Exam CIFC Topic 1 Question 143 Discussion

Actual exam question for IFSE Institute's CIFC exam
Question #: 143
Topic #: 1

The portfolio manager of the High Income Fund has 90% of the mutual fund invested in bonds. What is a reason for holding bonds in a mutual fund portfolio?

A. Bonds provide regular interest income which can be flowed out directly to investors. B. Bonds produce regular capital gain payments which result in preferential tax treatment for unitholders. C. Coupon payments paid by bonds from large Canadian corporations are eligible for preferential tax treatment. D. To increase the dividend yield and credit quality of the mutual fund

Suggested Answer: A Vote an answer

Explanation
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

by Nathan at Jun 09, 2024, 04:26 PM

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