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Official Practice ProblemFINRA Series 7 Blueprint: Function 2
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Question #s7-prep2-s7-q-249Function 2Fundamental

Mutual Funds

An advantage of index funds is:

Correct Choice: D

Index funds = passive = low fees, low turnover, tax-efficient.

Complete Analysis & Legal Rationale

Index funds use passive management, simply tracking an index rather than actively selecting securities. This results in lower management fees (expense ratios) compared to actively managed funds.

Distractor Autopsy (Why Other Options Are Traps)

FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:

Choice AIncorrect
Concept Trap

Index funds do not protect principal - they decline with the market.

Choice BIncorrect
Concept Trap

Low turnover (not high) is characteristic of index funds.

Choice CIncorrect
Concept Trap

Index funds have LOWER fees because they are passively managed.

Choice DCorrect
None

Matches the verified teaching point in the explanation.

Authorities & References:

Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.

Official SourceFINRA FINRA Series 7 Content Outline — General Securities Representative Examination (Series 7) Content Outline
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Regulatory Authority & Citations: Primary Legal Sources

Verified citations governing Question #s7-prep2-s7-q-249 (FINRA Series 7 Content Outline)

To pass the FINRA Series 7, candidates must understand not just the calculation formulas, but the exact federal securities acts, SRO rulebooks, and statutory frameworks that enforce them. Review the primary authority records below:

FINRAFINRA Series 7 Content Outline— General Securities Representative Examination (Series 7) Content Outline

Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.

Read FINRA Official Rule

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