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 net asset value (NAV) at any time. Which of the following investment products would be most suitable for this client?
- AAn open-end mutual fund
- BAn exchange-traded fund (ETF)
- CA unit investment trust (UIT)
- DA closed-end fund
Show answer & explanationAnswer & explanation
Correct answer: A. An open-end mutual fund
An open-end mutual fund perfectly matches the client's desire for professional management, diversification, and the ability to redeem shares at NAV at any time. Closed-end funds, ETFs, and UITs have different redemption or trading characteristics.
Why the other options are wrong
- B. ETFs trade on exchanges throughout the day, and their market price can differ from NAV.
- C. UITs are static portfolios that generally do not offer continuous redemption at NAV, and their portfolios are unmanaged.
- D. Closed-end funds trade on exchanges and their prices can deviate from NAV; they are not redeemed at NAV.
Open-End Mutual Fund Features
An investment company that continuously offers and redeems shares, professionally managed, diversified, and priced at Net Asset Value (NAV).
- Continuously offered and redeemed.
- Shares are bought from and sold back to the fund.
- Priced at NAV once per day, typically at market close.
- Professionally managed portfolio.
Memory trick: Open funds are OPEN for daily buys and sells at NAV.