Free S-12 Investment Funds Questions and Answers — Questions and Answers
Question 1: What is the primary feature of a mutual fund?
- It is actively traded by investors on stock exchanges.
- It pools money from investors to invest in a diversified portfolio. (Correct answer)
- It offers guaranteed returns to investors.
- It requires high minimum investments.
Correct answer: It pools money from investors to invest in a diversified portfolio.
Mutual funds are managed by professionals and provide investors access to a diversified portfolio.
Question 2: What is an Exchange-Traded Fund (ETF)?
- A fund traded on an exchange like a stock (Correct answer)
- A closed-end fund with limited shares
- A fund with guaranteed dividends
- A type of hedge fund
Correct answer: A fund traded on an exchange like a stock
ETFs are traded throughout the day on exchanges and typically track an index.
Question 3: What is a key characteristic of a closed-end fund?
- It continually issues new shares.
- It is traded on exchanges at market prices. (Correct answer)
- It offers unlimited redemption options.
- It always trades at net asset value (NAV).
Correct answer: It is traded on exchanges at market prices.
Closed-end funds issue a fixed number of shares and trade on exchanges at prices determined by supply and demand.
Question 4: What does a mutual fund’s expense ratio represent?
- The percentage of returns guaranteed by the fund
- The fund's annual operating expenses as a percentage of its assets (Correct answer)
- The fund's total net income
- The sales fees charged to buy shares
Correct answer: The fund's annual operating expenses as a percentage of its assets
The expense ratio covers management fees and other operational costs, reducing investor returns.
Question 5: What is a no-load mutual fund?
- A fund that charges no sales fees (Correct answer)
- A fund that eliminates management fees
- A fund that does not pay dividends
- A fund with fixed returns
Correct answer: A fund that charges no sales fees
No-load funds allow investors to buy and sell shares without incurring commission fees.
Free S-12 Investment Funds Questions and Answers
What is the primary feature of a mutual fund?