CIRE Element 7: securities, managed products and mutual funds

Element 7 has the highest indicative weighting on the CIRE: about 21 of the 110 questions. Its full title is Securities, managed products, mutual funds and other investments, and it covers the products an investment dealer sells and trades. With that weighting, Element 7 deserves substantial attention in your study plan. Your preparation should also account for your strengths and gaps across the other elements.

Where do you stand on Element 7? The free CIRE diagnostic gives you an indication of your strengths and the areas to review, element by element.

What the exam tests

According to the exam syllabus, you need to understand:

• the asset classes an investment dealer generally sells and trades;
• equities: types, features, risks and returns;
• fixed income securities and products: types, features, risks and returns;
• the main considerations for a shareholder or a fixed income holder;
• the purpose and uses of market indices;
• the types of pooled products and the features of managed products;
• what affects investors in mutual funds and exchange-traded funds (ETFs);
• other investments: types, features, risks, returns, advantages, disadvantages, costs and disclosure requirements.

Source: CIRE syllabus (CIRO, January 2025), learning outcomes 7.1 to 7.12.

The key ideas

1. The main asset classes

The syllabus lists five asset classes:

Asset class	Key characteristics and risks
Cash and cash equivalents	Generally high liquidity and relatively low risk; inflation can reduce purchasing power
Fixed income	Interest payments or other contractual cash flows; interest rate and credit risks
Equity	Ownership interests; potential dividends and capital gains, with market risk
Commodities	Exposure to commodity prices, which can be very volatile; direct holdings generally pay no interest or dividends
Derivatives	Value linked to an underlying asset, index or rate; the risk depends on the contract, the position and the strategy

Remember: taking more risk does not ensure a higher return. Investors generally require a higher expected return for taking more risk, and actual results can differ considerably.

2. Equities (shares)

• Common shares usually carry a vote. Dividends are paid only if the board declares them. Shareholders benefit from growth, but they rank last if the company is wound up.
• Preferred shares often pay a fixed dividend, although other dividend terms exist, and dividends are paid only if declared. They rank ahead of common shares for dividends and on liquidation. In exchange, they usually carry no vote and have more limited growth potential.

3. Fixed income (bonds)

A bond is a debt security issued by a government or a company. Many bonds pay periodic interest, called coupons, and repay their principal at maturity, subject to the issuer's ability to meet its obligations. Some bonds, such as strip bonds (STRIPs), pay no coupons: they are bought at a discount and repaid at face value at maturity.

The rate-price rule: all else being equal, when market yields rise, prices of existing fixed-rate bonds fall; when yields fall, prices rise.

Why? The price adjusts downward so the bond offers a yield competitive with comparable bonds.

Two risks to know:

• Interest rate risk: the price falls if rates rise.
• Credit risk: the issuer might not pay. A Government of Canada bond is considered safer than a small company's bond.

4. Market indices

An index measures the performance of a group of securities, for example the S&P/TSX Composite Index for the Canadian market. It is used to:

• track the market;
• compare a portfolio's return;
• build ETFs that replicate the index.

5. Mutual funds and ETFs

Pooled products gather money from many investors. The syllabus names four types: mutual funds, closed-end funds, ETFs and real estate investment trusts (REITs). Two useful products to compare are mutual funds and ETFs; the main difference is how you buy and sell them.

	Conventional mutual fund	ETF
Buying and selling	From the fund company or through a dealer; purchases and redemptions are generally processed at the net asset value calculated at the end of the day	On an exchange, during the trading day, like a share; the market price can differ from the net asset value
Management	Active or passive	Often passive (tracks an index), but actively managed ETFs exist too
Costs	Ongoing fees, including management fees	Ongoing fees, often lower; brokerage commissions may apply when you trade

Common trap: "ETF" doesn't always mean "index". Actively managed ETFs exist too.

6. Other managed products and investments

The syllabus also covers hedge funds, structured products, alternative investment funds, crypto assets and environmental, social and governance (ESG)-related products. For each one, know its features, risks and returns, advantages and disadvantages, costs, and what must be disclosed.

Important distinctions to understand

• The rate-price link for bonds. It matters for the bond learning outcomes (7.4 and 7.5).
• Who ranks first on liquidation. Generally: creditors (including bondholders), then preferred shareholders, then common shareholders.
• Product features and suitability. You need to understand a product's features and risks to judge whether it suits a client.

Test yourself: 3 questions

Original CIROPrep questions, in the style of the exam.

1. Interest rates rise. All else being equal, what generally happens to the price of a fixed-rate bond already issued?

• a) It rises
• b) It falls
• c) It doesn't change
• d) It depends only on the coupon

Answer

b) The price falls so the bond offers a yield competitive with comparable bonds.

2. Which statement best distinguishes a conventional mutual fund from an exchange-traded fund (ETF)?

• a) Mutual funds are always actively managed, while ETFs always track an index.
• b) Mutual fund transactions are generally processed at the net asset value calculated at the end of the day, while ETF units trade on an exchange during market hours.
• c) Mutual fund units trade on an exchange during market hours, while ETF transactions are processed at the net asset value calculated at the end of the day.
• d) ETF units are always bought and sold at their net asset value, while mutual fund prices change throughout the trading day.

Answer

b) Conventional mutual fund transactions are generally processed at the end-of-day net asset value. ETFs trade on an exchange during the trading day, and their market price can differ from their net asset value. Option c) reverses the two. Both types of fund can be actively or passively managed, both have ongoing fees, and both carry market risk.

3. A company is liquidated. Which of these holders generally ranks last?

• a) Bondholders
• b) Preferred shareholders
• c) Common shareholders
• d) All rank equally

Answer

c) In a typical liquidation, creditors rank ahead of preferred and common shareholders, and preferred shareholders generally rank ahead of common shareholders. Any remaining assets are distributed according to the applicable rights and priorities, so common shareholders may receive nothing.

Continue your preparation

Want to practise Element 7 in more depth? The Module — Element 7 has lessons, practice questions with an explanation for every answer, summaries, flashcards, a mind map and exam tips, in English and French. $29 plus applicable sales taxes · one payment · 6 months of access. Explore the Element 7 module.

Not sure which elements to prioritize? Take the free CIRE diagnostic: 27 questions, about 25 minutes, with a study plan based on your results.

Read next: the CIRE exam guide and Element 1, who regulates what.