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Section 2.3Investment Vehicle Characteristics

Packaged Products: Mutual Funds, ETFs & REITs

Examines open-end mutual funds, closed-end funds, unit investment trusts, exchange-traded funds, and real estate investment trusts.

Key Exam Takeaways
  • Open-end mutual funds issue continuous primary shares priced once daily at Net Asset Value (NAV) via forward pricing.
  • ETFs and Closed-End Funds trade intra-day on secondary exchanges at market prices that may deviate from NAV.
  • REITs must invest >=75% in real estate assets, generate >=75% of income from real estate, and distribute >=90% of taxable income.
Common Exam Traps
  • Mutual fund shares are redeemable securities and cannot be traded intra-day on secondary stock exchanges.
  • ETNs are debt obligations of the issuing bank and carry full unsecured credit risk of the issuer, unlike asset-backed ETFs.

Under the Investment Company Act of 1940, investment companies pool capital into three structures: Face-Amount Certificate companies, Unit Investment Trusts (UITs), and Management Companies (Open-end and Closed-end).

Open-end mutual funds calculate NAV at the close of trading (4:00 PM ET) using forward pricing. Class A shares feature front-end sales charges with breakpoints and Letters of Intent (LOI). Class B shares carry contingent deferred sales charges (CDSCs), while Class C shares levy ongoing level 12b-1 fees.

Exchange-Traded Funds (ETFs) track benchmarks with intraday liquidity and pass-through tax efficiency via creation/redemption units. Real Estate Investment Trusts (REITs) avoid corporate taxation if they distribute at least 90% of their net taxable income to shareholders, but distributions are taxed as ordinary income.

🎯 Knowledge Checkpoint
Knowledge Checkpoint • Section 2.3

A corporate treasurer seeks short-term parking for $5,000,000 in working capital. The adviser reviews commercial paper and negotiable jumbo certificates of deposit (CDs). Which statement accurately characterizes the regulatory maximum maturity for exempt commercial paper and the FDIC insurance framework governing jumbo CDs?