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Question

Difficulty: EasyInvestment Companies and Managed Funds

A retail investor asks a registered representative for an investment vehicle that provides a continuously offered, actively managed portfolio where shares are purchased and redeemed directly through the fund sponsor at the calculated Net Asset Value (NAV). Which of the following investment companies best fulfills the client's request?

  1. Open-end management investment companyAnswer
  2. B
    Closed-end management investment company
  3. C
    Unit investment trust
  4. D
    Real estate investment trust

Answer

An open-end management investment company (commonly known as a mutual fund) continuously issues new shares to buyers and redeems shares from sellers directly at the next computed Net Asset Value (NAV).
Open-end management investment companies (mutual funds) engage in continuous primary offerings of shares and are obligated to redeem outstanding shares upon investor request at the next calculated Net Asset Value (NAV) per share.

Step-by-Step Solution

1
Identify the key operational characteristics requested by the client.
The client requires active portfolio management, continuous issuance of shares, and direct redemption at Net Asset Value (NAV).
These specific attributes distinguish primary offering dynamics from secondary exchange trading structures.
2
Compare the features against standard investment company classifications.
Open-end funds match all three criteria because they engage in continuous primary offerings and redeem shares on demand at NAV.
Closed-end funds trade on secondary exchanges, whereas unit investment trusts hold unmanaged portfolios.

Key Concept

Open-End Fund Redemption and Continuous Offering Dynamics
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Topics

Investment Companies and Managed Funds

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