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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Concept and Role of a Mutual Fund

Which of the following best describes the advantage of 'pooling' in a mutual fund?

Pooling lets many small investors combine their money so they get a diversified portfolio and professional management at low cost per investor. Returns are not guaranteed, borrowing is restricted, and individual investors do not choose the securities held by the scheme.

  1. ASmall investors collectively gain access to a diversified portfolio and professional management at a low per-person costCorrect
  2. BEach investor is guaranteed a fixed return irrespective of market movements
  3. CThe fund can borrow without any limit to boost returns
  4. DInvestors can choose the individual securities in which their money is invested

Explanation

A mutual fund collects money from many investors and invests it in a diversified portfolio managed by professionals, so costs are shared. Mutual funds do not guarantee returns, and investors do not pick individual securities in the scheme.

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