Question7 Which of the following statements about open-end and closed-end funds is NOT true? Open-end funds redeem at NAV. Open-end funds can grow by issuing new units. Closed-end funds trade continuously on exchanges. Closed-end funds have set termination dates. Closed end funds redeem at market price. ResetMaximum marks: 3 Flag question undefined

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BlackTom AI · Accepted Answer

Question: Which of the following statements about open-end and closed-end funds is NOT true?
Options:
- Open-end funds redeem at NAV.
- Open-end funds can grow by issuing new units.
- Closed-end funds trade continuously on exchanges.
- Closed-end funds have set termination dates.
- Closed end funds redeem at market price.

Option 1: Open-end funds redeem at NAV.
This statement is true. Open-end funds redeem shares at their net asset value (NAV) per share, which is a core feature of open-end funds, ensuring investors can exit at a price that reflects the fund’s underlying assets.

Option 2: Open-end funds can grow by issuing new units.
This statement is also true. Open-end funds raise assets by issuing new shares when investors buy, allowing the fund to grow its asset base and liquidity directly from ongoing investor demand.

Option 3: Closed-end funds trade continuously on exchanges.
This statement is true. Closed-end funds do not issue or redeem shares on a daily basis; instead, their shares are bought and sold on stock exchanges like common stocks, leading to continuous trading during market hours.

Option 4: Closed-end funds have set termination dates.
This statement is not true in most cases. While some funds may have a planned lifecycle, the standard closed-end fund does not have a predetermined termination date in the way a fixed-mund fund might. Many closed-end funds are perpetual unless a dissolution is initiated, so saying they have set termination dates is typically inaccurate.

Option 5: Closed end funds redeem at market price.
This statement is not true. Closed-end funds generally do not redeem shares at market price through the fund; instead, investors trade shares on an exchange. Redemption by the fund itself (at NAV or market price) is not how most closed-end funds operate, which makes this option incorrect in describing typical closed-end fund mechanics.

In summary, several statements are not true about closed-end funds, but the option that explicitly claims that a closed-end fund redeems at market price is inconsistent with their standard structure. The explanation above contrasts each statement with how open-end and closed-end funds typically function, highlighting why the non-true statements diverge from standard definitions.

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