LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
A cautious client is shown a mortgage segregated fund. The agent should describe it as a fund that:
- Abuys residential properties directly and passes rental profits to unitholders each month
- Bholds only mortgages insured by the federal government and therefore carries no risk at all
- Clends the client the money for a home purchase at a guaranteed preferential interest rate
- holds residential and commercial mortgages and pays interest income with moderate risk
Correct answer: D) holds residential and commercial mortgages and pays interest income with moderate risk
A mortgage fund holds a portfolio of mortgage loans and earns interest. It typically sits between a money market fund and a bond fund on the risk scale, with returns that move when interest rates change and when borrowers default.
Why the other options are wrong
- AOwning property directly is a real estate fund, not a mortgage fund holding loans.
- BNot all mortgages held are insured, and even insured portfolios carry interest rate risk.
- CA mortgage fund is an investment for the client, not a source of borrowing for them.
Exam tip
Mortgage funds earn interest from loans; real estate funds own the buildings themselves.
Common mistake
Confusing a mortgage fund with a real estate fund or with a source of financing.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.