NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsMedium
A client is looking for an investment that provides diversification across various asset classes, professional management, and the ability to withdraw funds daily at the Net Asset Value (NAV). They are not concerned with intra-day trading or specific tax advantages beyond what a typical investment offers. Which of the following pooled investment vehicles would be the most suitable?
- AUnit Investment Trust (UIT)
- BExchange-Traded Fund (ETF)
- CClosed-End Fund
- DOpen-End Mutual Fund
Show answer & explanationAnswer & explanation
Correct answer: D. Open-End Mutual Fund
An open-end mutual fund offers diversification, professional management, and allows investors to redeem shares daily at the Net Asset Value (NAV), perfectly matching the client's requirements.
Why the other options are wrong
- A. UITs are fixed portfolios that are unmanaged and self-liquidating, not offering daily redemption at a fluctuating NAV based on active management.
- B. ETFs trade throughout the day on exchanges, not at NAV at the end of the day, and their price can deviate from NAV.
- C. Closed-end funds trade on exchanges throughout the day, often at a premium or discount to NAV, and have a fixed number of shares.
Open-End Mutual Fund
A type of pooled investment that continually offers new shares and redeems existing shares, with transactions priced at the Net Asset Value (NAV) once per day.
- Continuously offered and redeemable.
- Priced once daily at NAV.
- Professionally managed.
- Offers diversification.
- Most common type of mutual fund.
Memory trick: Open-End Mutual Fund: Always open for business, daily NAV.