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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 benefit of 'economies of scale' to a small investor investing through a mutual fund?

Economies of scale mean a mutual fund, by pooling many investors' money and trading in large volumes, achieves lower transaction costs per rupee invested. Returns are not guaranteed, market risk remains, and redemptions occur at NAV rather than at a premium.

  1. AGuaranteed returns because of pooling of money
  2. BLower transaction costs per rupee because the fund deals in large volumesCorrect
  3. CComplete exemption from market risk
  4. DAssured liquidity at a premium to NAV

Explanation

A mutual fund pools money from many investors and trades in large volumes, so brokerage and other costs per unit of investment are lower. Mutual funds never guarantee returns, cannot remove market risk, and open-ended units are redeemed at NAV, not at a premium.

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