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

What defines the structure of an open-end mutual fund?

1. Fixed share prices

2. Changing shares based on investor activity

3. No share limit for investors

4. Investment locked in for fixed periods

The correct answer is: Changing shares based on investor activity

The structure of an open-end mutual fund is defined by its ability to adapt the number of shares available based on investor activity. Unlike closed-end funds, which have a set number of shares that are traded on the market, open-end funds continuously issue and redeem shares in accordance with investor demand. When new investors contribute capital, the fund creates new shares, and when investors redeem shares, the fund cancels those shares. This dynamic structure allows investors to enter and exit the fund at any time, reflecting real-time investor behavior and demand, which is a fundamental characteristic of open-end mutual funds. While fixed share prices are not a characteristic of an open-end mutual fund—the price is calculated based on the net asset value (NAV) which fluctuates daily—there is indeed no limit on the number of shares for investors. However, the essential factor defining open-end mutual funds is the changing shares based on investor activity, making them responsive to market needs and liquidity requirements. The concept of investment being locked in for fixed periods does not apply, given that investors can redeem shares at any time, reinforcing the flexibility and accessibility nature of open-end mutual funds.