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Questions and Answers
What is the primary purpose of an investment fund?
What is the primary purpose of an investment fund?
- To offer a high-risk, high-reward investment strategy
- To pool money from various investors to invest in a diversified portfolio (correct)
- To trade on the stock market exclusively
- To provide a guaranteed return on investment
What type of investment fund is characterized by a fixed portfolio of securities?
What type of investment fund is characterized by a fixed portfolio of securities?
- Index fund
- Closed-ended fund (correct)
- Mutual fund
- Open-ended fund
What is the primary benefit of investing in a diversified portfolio?
What is the primary benefit of investing in a diversified portfolio?
- Higher risk of losses
- Reduced risk through spreading investments across different asset classes (correct)
- Guaranteed high returns
- Lower returns on investment
What is the role of a fund manager in an investment fund?
What is the role of a fund manager in an investment fund?
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What is the primary difference between an open-ended fund and a closed-ended fund?
What is the primary difference between an open-ended fund and a closed-ended fund?
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Study Notes
Investment Funds
- The primary purpose of an investment fund is to pool money from many investors to invest in a variety of assets, such as stocks, bonds, or real estate, to achieve a common financial goal.
Types of Investment Funds
- A fixed portfolio of securities characterizes a unit trust, a type of investment fund.
Diversified Portfolios
- The primary benefit of investing in a diversified portfolio is that it reduces risk by spreading investments across different asset classes, industries, or geographic regions, increasing the potential for long-term growth.
Fund Managers
- The role of a fund manager in an investment fund is to make investment decisions on behalf of the fund's investors, aiming to achieve the fund's investment objectives.
Open-Ended vs Closed-Ended Funds
- The primary difference between an open-ended fund and a closed-ended fund is that open-ended funds issue new shares or redeem existing shares based on investor demand, whereas closed-ended funds have a fixed number of shares that are traded on an exchange.
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