FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationRegulatory Fundamentals and General Product KnowledgeEasy
A client is interested in an investment vehicle that offers professional management, diversification, and the ability to redeem shares daily at the net asset value. Which of the following investment products best fits this description?
- AClosed-end fund
- BUnit investment trust (UIT)
- CMutual fund
- DExchange-traded fund (ETF)
Show answer & explanationAnswer & explanation
Correct answer: C. Mutual fund
Mutual funds are open-end investment companies that continuously offer and redeem shares, allowing investors to buy and sell at the daily calculated net asset value (NAV). They provide professional management and diversification.
Why the other options are wrong
- A. Closed-end funds trade on exchanges and do not redeem shares at NAV daily.
- B. UITs are unmanaged portfolios that issue redeemable shares, but they are fixed portfolios and do not offer continuous professional management in the same way mutual funds do.
- D. ETFs trade on exchanges throughout the day and do not redeem shares directly with the fund at NAV daily.
Mutual Fund Characteristics
An open-end investment company that pools money from investors to purchase securities, offering professional management, diversification, and daily redemption at NAV.
- Open-end investment company
- Shares bought/sold at NAV
- Professionally managed
- Diversified portfolio
Memory trick: Mutual funds offer a daily 'NAV'igation for your money.