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 across various securities, and the ability to easily purchase or redeem shares at the end of each trading day based on its net asset value (NAV). Which of the following investment vehicles would be MOST suitable for this client?
- AClosed-End Fund
- BUnit Investment Trust (UIT)
- COpen-End Mutual Fund
- DExchange Traded Fund (ETF)
Show answer & explanationAnswer & explanation
Correct answer: C. Open-End Mutual Fund
Open-end mutual funds are characterized by professional management, diversification, and the ability to redeem shares daily at NAV, aligning perfectly with the client's stated preferences. ETFs trade on exchanges throughout the day, while closed-end funds and UITs have different redemption and trading characteristics.
Why the other options are wrong
- A. Closed-end funds have a fixed number of shares and trade on exchanges, often at a premium or discount to NAV.
- B. UITs are unmanaged portfolios that terminate on a specified date, not offering daily redemption at NAV in the same way as open-end funds.
- D. ETFs trade on exchanges throughout the day, and their price can fluctuate from NAV.
Open-End Mutual Fund Characteristics
An investment company that continuously offers new shares and redeems existing shares at the fund's current net asset value (NAV) per share.
- Professionally managed portfolio of securities.
- Offers diversification across various asset classes.
- Shares are purchased from and redeemed by the fund.
- Price is determined by the fund's NAV, calculated daily.
Memory trick: Open doors to funds, daily NAV for you.