4.1 Mutual Funds
Mutual funds pool investor capital to provide institutional diversification and professional management under the Investment Company Act of 1940.
Key NASAA Exam Takeaways
- Mutual funds (open-end investment companies) execute continuous primary offerings and redeem shares at Net Asset Value (NAV).
- Forward Pricing: Orders received during trading hours execute at the next calculated NAV (typically 4:00 PM ET).
- Share classes: Class A (front-end load, low 12b-1), Class B (contingent deferred sales charge CDSC, converts to A), Class C (level load, 1% 12b-1).
- Breakpoints offer sales charge discounts for large dollar commitments under a Letter of Intent (LOI) valid for 13 months.
| Share Class | Sales Load Timing | 12b-1 Annual Fee | Ideal Horizon |
|---|---|---|---|
| Class A | Front-end (deducted upon purchase) | Low (approx 0.25%) | Long-term (> 5 years); qualifies for breakpoints |
| Class B | Back-end (CDSC decreases over time) | Moderate (approx 0.75%) | Intermediate (converts to A after 6-8 years) |
| Class C | Level load (no front-load, small 1% 1-yr CDSC) | Highest allowable (0.75% + 0.25% service) | Short-term (1-3 years) |
Knowledge Checkpoint • Section 4.1
An investor submits an order to redeem 500 shares of an open-end mutual fund at 2:30 PM on Tuesday. At what price will the redemption be transacted?