Question

Which of the following is NOT an advantage of mutual funds?

1. Diversification
2. Deferred Taxes
3. Easy to get started with small amounts of money
4. Professional Management

In order to be considered a diversified company under the Investment Company Act of 1940, All of these must be true except _____________.

1. No more than 5% of the funds assets can be invested in a single security
2. The fund can’t own more than 10% of a securities voting stock
3. The fund must be at least 50% equity financed
4. At least 75% of the fund’s assets must be in cash or securities

Which statement is TRUE?

The fund has to pay taxes on the dividends, capital gains, and interest it receives

If you have owned shares in the fund for a long time, then any capital gains distribution you receive will be considered long term

Closed-end funds trade at its Net Asset Value

Either all of the above of none of the above are true

Answer 1

1) b) Deffered tax

Reason : Deffered tax is not advantages of mutual funds.

Diversification is possible under mutual funds.

Mutual fund is manages by professional management & can be started with small amount of money.

2) c) The fund must be at least 50% equity finance.

Reason: Diversified investments company have restrictions under rule 75 - 5 - 10. Atleast 75% of assets must be in cash or securities, no more than 5% of assets can be invested in single securities & fund can not own more than 10% of securities voting stock.

Hence, there is no such restrictions of 50% equity finance.

3) Either all of the above or none of the above are true.

Reason: Fund is not required to pay taxes on all dividend, interest & capital gains but has to pay as the tax law rules.

All capital gains on shares held in fund for long time will not be considered long term but it depends upon how long the fund itself held the sold holdings.

Closed ended funds not trade at net assets value but trades at premium or discount of it's net assets value.