Investment company and variable contracts products vocabulary tested on the Series 6 exam.
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- What are the three types of investment companies defined by the Investment Company Act of 1940?
- Face-amount certificate companies, unit investment trusts, and management companies.
- What is a unit investment trust (UIT)?
- An investment company holding a fixed, unmanaged portfolio that issues redeemable units.
- What distinguishes an open-end fund from a closed-end fund?
- An open-end fund continuously issues and redeems shares at NAV; a closed-end fund has a fixed number of shares that trade on an exchange.
- How is a mutual fund's net asset value (NAV) per share calculated?
- Total assets minus liabilities, divided by shares outstanding.
- What pricing rule requires mutual fund orders to be executed at the next computed NAV?
- Forward pricing.
- What is the maximum sales charge FINRA allows on a mutual fund under normal circumstances?
- 8.5% of the offering price.
- What is a front-end load?
- A sales charge deducted from the purchase amount when fund shares are bought.
- What is a back-end load (contingent deferred sales charge)?
- A sales charge applied when shares are redeemed, typically declining the longer they are held.
- What is a 12b-1 fee?
- An annual fee deducted from fund assets to pay for marketing and distribution costs.
- What is a breakpoint in mutual fund sales charges?
- A dollar investment threshold at which the sales charge percentage is reduced.
- What is a Letter of Intent (LOI) in mutual fund investing?
- A statement letting an investor qualify for a breakpoint by committing to invest a set amount within 13 months.
- What is Rights of Accumulation?
- A privilege that lets an investor combine the value of prior fund purchases with a new one to qualify for a breakpoint.
- What is an expense ratio?
- A fund's annual operating expenses expressed as a percentage of average net assets.
- What is dollar cost averaging?
- Investing a fixed dollar amount at regular intervals regardless of the share price.
- What is a no-load fund?
- A mutual fund sold without a sales charge.