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 liquidate shares at the end of each trading day at their net asset value (NAV). Which of the following investment products would be most suitable for this client?
- AExchange Traded Fund (ETF)
- BClosed-End Mutual Fund
- CUnit Investment Trust (UIT)
- DOpen-End Mutual Fund
Show answer & explanationAnswer & explanation
Correct answer: D. Open-End Mutual Fund
Open-end mutual funds are characterized by professional management, diversification, and the ability to redeem shares at NAV at the end of each trading day. This aligns perfectly with the client's stated preferences.
Why the other options are wrong
- A. ETFs trade throughout the day on exchanges, but their price can deviate from NAV.
- B. Closed-end mutual funds trade on exchanges and their price is determined by supply and demand, not NAV.
- C. UITs are unmanaged portfolios that terminate on a specified date, not offering daily liquidation at NAV.
Open-End Mutual Fund Features
An investment vehicle that pools money from many investors to purchase securities, managed by a professional fund manager, and allows investors to buy and sell shares directly with the fund at the daily Net Asset Value (NAV).
- Professionally managed
- Diversified portfolio
- Shares bought/sold directly with the fund
- Trades at Net Asset Value (NAV) at day's end
Memory trick: Open funds have an open door to daily NAV.