FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsEasy
A client, age 40, expresses a desire to invest in a product that offers professional management, diversification, and the ability to redeem shares at the current net asset value (NAV) at any time. They are also comfortable with market fluctuations. Which of the following investment products is MOST suitable for this client?
- AClosed-end fund
- BExchange Traded Fund (ETF)
- COpen-end mutual fund
- DUnit Investment Trust (UIT)
Show answer & explanationAnswer & explanation
Correct answer: C. Open-end mutual fund
The client's desire for professional management, diversification, and the ability to redeem shares at NAV at any time directly aligns with the characteristics of an open-end mutual fund. Open-end funds continuously issue and redeem shares, unlike closed-end funds or ETFs which trade on exchanges.
Why the other options are wrong
- A. Closed-end funds trade on exchanges and do not redeem shares at NAV; their price is determined by supply and demand.
- B. ETFs trade on exchanges throughout the day, and while professionally managed and diversified, they do not redeem shares at NAV with the fund directly for individual investors.
- D. UITs are unmanaged, fixed portfolios that terminate on a specified date, contradicting the client's need for ongoing professional management.
Open-End Mutual Fund
An investment company that continuously issues and redeems shares, priced at their net asset value (NAV), offering professional management and diversification.
- Shares bought and sold directly from the fund.
- Priced at NAV at the end of the trading day.
- Professionally managed portfolio.
Memory trick: NAVigate to the Open Sea of Funds!