Part 1Small investors might prefer to invest in a mutual fund rather than with an individual broker because of::Part 2
A. Mutual funds are important to household saving. B. Mutual funds are run by experts. C. Mutual funds lower transaction costs to individuals. D. Mutual funds have a large market share.

Question

Part 1Small investors might prefer to invest in a mutual fund rather than with an individual broker because​ of::Part 2
A. Mutual funds are important to household saving. B. Mutual funds are run by experts. C. Mutual funds lower transaction costs to individuals. D. Mutual funds have a large market share.

BlackTom AI · Accepted Answer

The question poses why small investors might prefer investing in a mutual fund rather than dealing with an individual broker.
Option A: 'Mutual funds are important to household saving.' While mutual funds can play a role in saving, this statement is causal in the wrong direction for the given question and doesn’t directly explain the investor preference over using an individual broker.
Option B: 'Mutual funds are run by experts.' This is true in a general sense, but many investment decisions by individuals can involve expertise. The key point for the preference discussed is cost and access, not merely expertise, so this answer is incomplete as the primary reason.
Option C: 'Mutual funds lower transaction costs to individuals.' This is a core, direct advantage: pooling resources across many investors spreads fixed costs and reduces trading and management costs per unit, making it attractive for small investors who would otherwise face higher per-trade costs. This aligns with why individuals favor funds over individually managed accounts.
Option D: 'Mutual funds have a large market share.' Market share describes popularity or size, not necessarily the reason a small investor would choose a mutual fund over a broker. A large market share doesn’t inherently explain lower costs or better access for the individual investor.
In summary, the most relevant justification relates to cost efficiency for small investors, which is best captured by option C. The other options either state broader truths that don’t address the cost-focused incentive or describe attributes that do not directly explain the preference.

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Two advantages of investing in mutual funds are diversification and professional management.

One of the attractive features of mutual funds is that they offer small investors a diversified portfolio and professional management.

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Which one of the following statements regarding open-end mutual funds is false?

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