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Which of the following characteristics about mortgage mutual funds is CORRECT?
typically monthly distributions of interest
if interest rates fall, the mutual fund's net asset value per unit (NAVPU) will decline
suitable only for high risk investors
risk-free where the mortgages are National Housing Act (NHA) insured
A is correct because mortgage mutual funds typically pay monthly distributions of interest to their investors, as they invest in mortgages that generate regular interest income. If interest rates fall, the mutual fund’s net asset value per unit (NAVPU) will increase (B), not decline, as the value of the existing mortgages in the fund will rise. Mortgage mutual funds are suitable for low to moderate risk investors ©, not only for high risk investors, as they provide stable income and capital preservation. Mortgage mutual funds are not risk-free (D), even if the mortgages are National Housing Act (NHA) insured, as they still face credit risk, interest rate risk, and liquidity risk. References: Investment Funds in Canada (IFC) | Canadian Securities Institute
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