FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationRegulatory Fundamentals and General Product KnowledgeEasy
A registered representative is explaining the characteristics of different investment products to a new client. The client is interested in an investment 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 companies best fits this description?
- AOpen-End Fund
- BClosed-End Fund
- CUnit Investment Trust (UIT)
- DFace-Amount Certificate Company
Show answer & explanationAnswer & explanation
Correct answer: A. Open-End Fund
Open-end funds, also known as mutual funds, are continuously offered, professionally managed, diversified, and allow investors to redeem shares at NAV at any time directly with the fund.
Why the other options are wrong
- B. Closed-end funds trade on exchanges and their price is determined by supply and demand, not NAV.
- C. UITs are unmanaged and have a fixed portfolio, not offering continuous professional management in the same way.
- D. Face-amount certificate companies issue debt instruments and are not primarily known for diversification or continuous management of a securities portfolio.
Open-End Fund (Mutual Fund)
An investment company that continuously offers and redeems shares, priced at net asset value (NAV), providing professional management and diversification.
- Shares bought/sold directly from/to the fund.
- Priced at NAV plus any sales charge.
- Continuously offered and redeemed.
Memory trick: Open doors for continuous access, closed doors for market trades.