Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What characterizes an open-end mutual fund?

1. It issues a fixed number of shares

2. Share prices fluctuate based on market demand

3. The number of shares can change as investors come and go

4. It is required to register with regulators

The correct answer is: The number of shares can change as investors come and go

An open-end mutual fund is characterized by its ability to continuously issue and redeem shares, which means that the number of shares can change as investors buy or sell them. This dynamic allows the fund to accommodate new investors by creating additional shares or to reduce shares when investors redeem their interests. As investors come in (subscribe) or go out (redeem), the total shares outstanding will vary, making open-end funds flexible for both management and shareholders. The share prices of open-end mutual funds are typically calculated at the end of each trading day based on the net asset value (NAV) of the underlying assets, which reflects the fair value of the fund's holdings rather than being directly influenced by market demand in real-time. Although many types of mutual funds, including open-end funds, do require registration with regulators, this characteristic alone is not unique to open-end mutual funds. Therefore, the defining feature of open-end mutual funds is their ability to adjust the number of shares in circulation based on investor transactions.