Question

What is a Mutual Fund?

A. A pool of securities you can buy as an investment

B. A fund used by companies to raise capital

C. A fund that follows an index you can buy like a stock

D. A type of high-interest bank account

Which is a characteristic of open-ended mutual funds?

A. Shares trade throughout the day

B. There is a limit to the size of the fund

C. Investors typically hold fractions of shares

D. They are tied to a stock index and not actively managed

Which is one major advantage of Mutual Funds?

A. They have very low fees

B. You have a fund manager so you do not need to constantly monitor your investments

C. You can pick the companies you invest in

D. You get more dividends than if you held the underlying stock

What is a disadvantage of Mutual Funds?

A. It is hard to diversify your portfolio using mutual funds

B. It costs a lot more in commissions than buying individual stocks

C. Mutual funds can have maintenance fees regardless of fund performance

D. Mutual funds are not actively managed by a professional

What is one difference between Mutual Funds and ETFs?

A. Mutual Funds can hold more than just stocks

B. Mutual Funds make it easier to diversify

C. Mutual Funds are always easier for taxes

D. Mutual Funds cannot be day-traded

Answer 1

Answers :

I) A) A pool of securities you can buy as an investment.

Reason : Mutual fund is pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments and other assets.

II) C) Investors typically hold fractions of shares

Reason :Investors in open ended fund hold fractions of shares.  

Open ended fund trades at the end of day and not throughout the day.

There is no limit to size of funds.

Mutual funds are managed actively.

III) B) You have a fund manager so you do not need to constantly monitor your investments.

Reason : Mutual fund is managed by professional funds manager & hence investors not need to constantly monitor investments.

IV) C) Mutual funds can have maintenance fees regardless of fund performance.

Reason : Other given options are advantages of mutual fund.

It helps to diversify portfolio, cost less commission than buying individual stocks and mutual funds are actively managed.

V)  A) Mutual funds can hold more than just stocks.

Reason : Both mutual funds & ETFs are easier to diversify. But mutual funds can hold more than just stocks.

ETFs are more tax efficient than mutual funds. Further, open ended mutual funds are traded on day basis at the end of day.