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 'pooling' in a mutual fund?
Pooling lets many small investors combine their money so that together they hold a diversified portfolio managed professionally, which would be hard to build individually. It does not guarantee returns, remove market risk, or let investors choose the securities.
- AGuaranteeing a fixed return to every investor
- BAllowing many small investors to collectively hold a diversified portfolio they could not build individuallyCorrect
- CEliminating all market risk through hedging
- DGiving each investor the right to pick individual securities in the portfolio
Explanation
A mutual fund collects money from many investors and invests it in a diversified portfolio, giving small investors access to diversification and professional management. It does not guarantee returns or remove market risk, and investors do not choose individual securities.
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