NASAA Series 66 Uniform Combined State Law ExaminationInvestment Vehicle CharacteristicsEasy
A client is interested in an investment that offers professional management, diversification, and the ability to invest small amounts periodically. They also want to be able to sell their shares back to the company at net asset value (NAV) at any time. Which of the following investment vehicles best fits these criteria?
- AExchange-Traded Fund (ETF)
- BUnit Investment Trust (UIT)
- CClosed-End Fund
- DOpen-End Mutual Fund
Show answer & explanationAnswer & explanation
Correct answer: D. Open-End Mutual Fund
Open-end mutual funds offer continuous offerings of shares, professional management, diversification, and the ability to redeem shares at NAV at any time. This aligns perfectly with the client's requirements.
Why the other options are wrong
- A. ETFs trade on exchanges and do not redeem shares at NAV directly with the fund.
- B. UITs have a fixed portfolio and are not actively managed, nor do they typically offer continuous redemption at NAV in the same way as open-end funds.
- C. Closed-end funds trade on exchanges and do not redeem shares directly with the fund at NAV.
Open-End Mutual Fund
An investment company that continuously offers new shares and redeems existing shares at the current net asset value (NAV).
- Shares are bought and sold directly from the fund company.
- NAV is calculated daily based on the value of the underlying assets.
- Professional management and diversification are key benefits.
Memory trick: Open funds open doors to daily NAV.