Investment Companies Overview
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Investment Companies Overview

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Questions and Answers

What distinguishes hedge funds from other investment options?

  • They primarily invest in U.S. public companies.
  • They often operate as private investment pools. (correct)
  • They exclusively focus on real estate investments.
  • They are required to follow SEC regulations.

    • Which investment policy is associated with securities from developing nations?

  • Global Funds
  • Bond Funds
  • Equity Sector Funds
  • Emerging Markets Funds (correct)

    • What is a characteristic of Money Market Mutual Funds?

  • They deal with instruments like commercial paper and repurchase agreements. (correct)
  • They invest in long-term corporate bonds.
  • They are focused on emerging market equities.
  • They primarily invest in stocks.

    • Which type of mutual fund includes stocks concentrated in a particular industry?

    <p>Equity Sector Funds</p> Signup and view all the answers

    What is true about International Funds?

    <p>They focus on worldwide securities excluding the U.S.</p> Signup and view all the answers

    What is a characteristic of a Balanced Fund?

    <p>Holds both equities and fixed-income securities</p> Signup and view all the answers

    What defines a Life Cycle Fund with a Targeted Maturity strategy?

    <p>Becomes more conservative as the investor ages</p> Signup and view all the answers

    How do Index Funds typically manage their investments?

    <p>By buying shares in proportion to a security's representation in an index</p> Signup and view all the answers

    What is the primary feature of Asset Allocation/Flexible Funds?

    <p>Proportions shift according to market forecasts</p> Signup and view all the answers

    What is a Fund of Funds?

    <p>A type of fund that primarily invests in other mutual funds</p> Signup and view all the answers

    What does net asset value (NAV) represent in investment companies?

    <p>Assets minus liabilities per share</p> Signup and view all the answers

    Which function is NOT provided by investment companies?

    <p>Market speculation</p> Signup and view all the answers

    What characterizes a closed-end fund?

    <p>Shares are traded at fluctuating prices</p> Signup and view all the answers

    What is a primary feature of unit investment trusts?

    <p>The fund's portfolio is fixed for its lifetime</p> Signup and view all the answers

    Which type of investment fund combines assets from multiple investors for larger accounts?

    <p>Commingled funds</p> Signup and view all the answers

    What is typically charged as a fee in managed investment companies?

    <p>Flat annual management fees</p> Signup and view all the answers

    What distinguishes a real estate investment trust (REIT) from other funds?

    <p>It primarily invests in real estate and related loans</p> Signup and view all the answers

    Which option describes an open-end fund?

    <p>Shares are issued and redeemed at NAV</p> Signup and view all the answers

    What is meant by 'Front-end Load' in mutual funds?

    <p>A commission paid when purchasing shares</p> Signup and view all the answers

    What do high expense ratios in mutual funds typically indicate?

    <p>Poorer performance relative to lower-cost funds</p> Signup and view all the answers

    Which of the following correctly describes '12b-1 charges'?

    <p>Expenses related to marketing and distribution</p> Signup and view all the answers

    How is the effective load different from the stated load?

    <p>Effective load includes additional expenses not mentioned in stated load</p> Signup and view all the answers

    What does 'soft dollars' refer to in the context of mutual funds?

    <p>Research services provided without direct charges</p> Signup and view all the answers

    What calculation is used to determine the rate of return for a mutual fund?

    <p>NAV1 - NAV0 + Income + Capital gains distribution, divided by NAV0</p> Signup and view all the answers

    What is the purpose of the load in mutual funds?

    <p>To offset marketing expenses</p> Signup and view all the answers

    What are operating expenses in mutual funds?

    <p>Costs incurred by the fund in operating the portfolio</p> Signup and view all the answers

    What is a requirement for a mutual fund to avoid being taxed?

    <p>It must be diversified and distribute income.</p> Signup and view all the answers

    How is the turnover rate of a mutual fund calculated?

    <p>Annual total asset value bought or sold divided by average total asset value.</p> Signup and view all the answers

    Which statement accurately describes the taxation of mutual fund income for investors?

    <p>Investors are taxed on capital gains and dividend distributions.</p> Signup and view all the answers

    Which of the following best describes exchange-traded funds (ETFs)?

    <p>Offshoots of mutual funds that allow trading of entire portfolios like stocks.</p> Signup and view all the answers

    What effect does high turnover have on a mutual fund's operational costs?

    <p>It increases commission costs charged against NAV.</p> Signup and view all the answers

    What does the evidence suggest about the performance of mutual funds compared to the broader market?

    <p>Average mutual fund performance is lower than the broad market performance.</p> Signup and view all the answers

    What is a common misconception about investor taxation related to mutual funds?

    <p>Only capital gains distributions are taxable for investors.</p> Signup and view all the answers

    Which of the following factors affects an investor's tax liability in mutual funds?

    <p>The turnover rate of the fund.</p> Signup and view all the answers

    What is the primary role of investment companies in the financial market?

    <p>Investing the pooled funds of individual investors in securities and assets</p> Signup and view all the answers

    Which characteristic primarily defines an open-end fund?

    <p>Shares can be redeemed at their net asset value at any time</p> Signup and view all the answers

    What distinguishes managed investment companies from unit investment trusts?

    <p>The portfolios in managed investment companies are actively managed</p> Signup and view all the answers

    What best describes the nature of commingled funds?

    <p>They are partnerships pooling funds for trusts or larger retirement accounts</p> Signup and view all the answers

    What is a key difference between closed-end funds and open-end funds?

    <p>Closed-end funds may trade at market prices that differ from their net asset value</p> Signup and view all the answers

    Which function of investment companies contributes to lower costs for investors?

    <p>Professional management expertise</p> Signup and view all the answers

    In the context of real estate investment trusts (REITs), what is true?

    <p>REITs invest in real estate and real estate loans</p> Signup and view all the answers

    What is net asset value (NAV) calculated as?

    <p>Total assets minus total liabilities of the fund</p> Signup and view all the answers

    Which of the following accurately describes hedge funds?

    <p>They are private investment pools.</p> Signup and view all the answers

    What distinguishes Global Funds from International Funds?

    <p>Global Funds include securities from the U.S.A.</p> Signup and view all the answers

    Which investment policy is primarily focused on fixed-income securities?

    <p>Bond Funds</p> Signup and view all the answers

    What is a common characteristic of Emerging Markets Funds?

    <p>They focus on securities from developing nations.</p> Signup and view all the answers

    Which type of mutual fund specializes in stocks concentrated in a specific sector?

    <p>Equity Sector Funds</p> Signup and view all the answers

    What is a characteristic of Money Market Mutual Funds?

    <p>They primarily invest in commercial paper and repurchase agreements.</p> Signup and view all the answers

    Which of the following statements about International Regional Funds is correct?

    <p>They focus on securities from particular regions outside the U.S.</p> Signup and view all the answers

    Which characteristic correctly identifies Bond Funds?

    <p>They specialize in fixed-income instruments.</p> Signup and view all the answers

    What distinguishes a closed-end fund from an open-end fund?

    <p>Closed-end funds trade shares on an exchange like a stock.</p> Signup and view all the answers

    Which statement about hedge funds is inaccurate?

    <p>They are accessible to retail investors.</p> Signup and view all the answers

    What is not a condition for a mutual fund to avoid taxation?

    <p>Maintaining a high turnover rate</p> Signup and view all the answers

    How is the turnover rate of a mutual fund determined?

    <p>Total asset value bought or sold divided by average total asset value</p> Signup and view all the answers

    What implication does high turnover have for a mutual fund?

    <p>Higher operational costs charged against NAV</p> Signup and view all the answers

    Which aspect of mutual funds directly impacts investor's tax liability?

    <p>Capital gain distributions and dividend distributions</p> Signup and view all the answers

    In what way do exchange-traded funds (ETFs) differ from traditional mutual funds?

    <p>They can be traded like individual stocks</p> Signup and view all the answers

    What feature differentiates a Balanced Fund from other types of mutual funds?

    <p>Holds both equities and fixed-income securities</p> Signup and view all the answers

    Which statement is true regarding Targeted Maturity Funds in a Life Cycle Fund?

    <p>They become more conservative as the investor ages</p> Signup and view all the answers

    What is the primary strategy employed by Index Funds?

    <p>Match performance of a broad market index</p> Signup and view all the answers

    Which type of mutual fund primarily invests in other mutual funds?

    <p>Fund of Funds</p> Signup and view all the answers

    What characteristic defines Asset Allocation/Flexible Funds?

    <p>Proportions vary according to market forecasts</p> Signup and view all the answers

    How does the investment strategy of a Life Cycle Fund differ from that of a Balanced Fund?

    <p>Life Cycle Funds adjust their asset allocation based on investor age</p> Signup and view all the answers

    Which investment fund category aims to match the performance of a broad market index?

    <p>Index Funds</p> Signup and view all the answers

    What component is added to the expense ratios to correctly assess the total costs of mutual funds?

    <p>12b-1 charges</p> Signup and view all the answers

    Which of the following is a defining feature of Life Cycle Funds?

    <p>Change asset allocation as the investor ages</p> Signup and view all the answers

    What is a key characteristic of a Flexible Asset Allocation Fund?

    <p>Adjusts investments based on market conditions</p> Signup and view all the answers

    What is the primary purpose of the front-end load in mutual funds?

    <p>To offset marketing expenses</p> Signup and view all the answers

    If a mutual fund has a stated load of 5%, what can be inferred about the effective load?

    <p>It is guaranteed to be greater than 5%</p> Signup and view all the answers

    What does the calculation for the rate of return on a mutual fund include?

    <p>NAV change, Income, and Capital gains distribution</p> Signup and view all the answers

    Which of the following statements about mutual fund performance is accurate?

    <p>Gross performance is similar for load and no-load funds</p> Signup and view all the answers

    What are soft dollars primarily exchanged for in the context of mutual funds?

    <p>Research services</p> Signup and view all the answers

    Which of the following describes the term 'operating expenses' in mutual funds?

    <p>Costs related to managing the fund’s portfolio</p> Signup and view all the answers

    What is likely to happen when a mutual fund has high operating expenses?

    <p>Poorer overall performance</p> Signup and view all the answers

    In terms of mutual fund fees, what do investors generally avoid in no-load funds?

    <p>Sales charges</p> Signup and view all the answers

    What does 'annual fee' in mutual funds typically cover?

    <p>Marketing and distribution costs</p> Signup and view all the answers

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