FINRA Series 7Investment Information and Suitable RecommendationsEasy
A client is interested in an investment that offers professional management, diversification, and the ability to redeem shares at Net Asset Value (NAV) at any time. Which type of investment company BEST fits this description?
- AOpen-end fund (mutual fund)
- BClosed-end fund
- CUnit investment trust (UIT)
- DExchange-traded fund (ETF)
Show answer & explanationAnswer & explanation
Correct answer: A. Open-end fund (mutual fund)
Open-end funds, commonly known as mutual funds, continuously issue and redeem shares at their NAV, offer professional management, and provide diversification. Closed-end funds and ETFs trade on exchanges, and UITs are unmanaged and have a fixed portfolio.
Why the other options are wrong
- B. Closed-end funds trade on exchanges, and their price can deviate from NAV; they don't redeem shares at NAV.
- C. UITs are unmanaged and have a fixed portfolio, not offering continuous professional management of a varying portfolio.
- D. ETFs trade on exchanges throughout the day, and their price can deviate from NAV; they don't redeem shares at NAV directly from the fund by individual investors.
Open-End Management Company (Mutual Fund)
An investment company that continuously issues new shares and redeems existing shares at their Net Asset Value (NAV). They are professionally managed and offer diversification.
- Shares are bought from and sold back to the fund directly.
- Priced once per day at NAV.
- Offer professional management and diversification.
- Most common type of investment company.
Memory trick: Open-end: Open to buy/sell at NAV, Always managed.