Explanation:
The correct answer is C.
Equity index funds are used to track the performance of particular equity indexes, such as the S&P 500 or the FTSE 100. To achieve this, all the shares in the chosen index are bought in amounts reflective of their weight. That means if XYZ stock has a 2% weight in a particular index, 2% of the tracking portfolio for the index would be invested in XYZ stock.
Option A is incorrect: In an open mutual fund, shares are traded at their net asset value (NAV), which is calculated as:
The number of shares in an open mutual fund increases and decreases as investors buy and sell their shares.
Option B is incorrect: In a closed-end mutual fund, shares are traded at a discount/premium to their net asset value (NAV), and the number of shares remains constant throughout the fund's life. The changes in the price of its shares are determined by supply and demand.
Option D is incorrect: Hedge funds have fewer regulations than mutual funds, follow a diverse approach of trading strategies, and are not required to disclose their holdings daily. They, however, have additional restrictions on how to solicit funds from investors.
Q.1125 Funds that are designed to track a particular equity index such as the S&P 500 are known as:
In a investment, there are various types of funds that investors can choose from, each with its unique characteristics and investment strategies. One such type of fund is designed specifically to mirror the performance of a particular equity index, such as the S&P 500. What are these types of funds called?
A
Open-end funds.
B
Closed-end funds.
C
Equity index funds.
D
Hedge funds.
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