Investment Funds in Canada (IFIC) Practice Exam

The concept being tested is how withdrawals relate to the fund’s current value. If a client wants to take out a fixed percentage of the fund value at each interval, the withdrawal amount changes as the fund grows or shrinks. This approach is called a ratio withdrawal plan.

For example, with a 5% ratio withdrawal, a fund worth $100,000 would yield a $5,000 withdrawal; if the fund rises to $120,000, the withdrawal becomes $6,000; if it falls to $90,000, the withdrawal becomes $4,500. The key idea is the withdrawal is always a constant proportion of the current value.

A fixed withdrawal plan, by contrast, would withdraw the same dollar amount each period, regardless of how the fund’s value changes, so the actual percentage of the fund you’re taking out would vary over time. The other terms don’t specifically describe withdrawals as a fixed percentage of current value.