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

What type of fund invests capital in diversified securities of other companies?

1. Exchange-Traded Fund

2. Mutual Fund

3. Pension Fund

4. Hedge Fund

The correct answer is: Mutual Fund

A mutual fund is a pooled investment vehicle that collects money from multiple investors to invest in a diversified portfolio of securities, including stocks, bonds, and other assets. The primary objective of a mutual fund is to provide investors with both diversification and professional management of their investments. By investing in a variety of securities across different sectors and industries, mutual funds aim to reduce risk while seeking returns for their shareholders. The structure of mutual funds allows individual investors, who may not have the expertise or resources to invest in securities on their own, to access a diversified portfolio that they might not be able to create independently. Additionally, mutual funds can cater to various investment objectives and risk appetites, making them a popular choice among retail investors. While exchange-traded funds (ETFs) also invest in diversified portfolios of securities and offer some similarities to mutual funds, they trade on exchanges like individual stocks and generally have different tax implications and costs. Pension funds, on the other hand, are institutional funds that manage retirement savings for employees and tend to invest in a wider array of asset classes, including private equity and real estate, alongside more traditional securities. Hedge funds typically engage in more complex investment strategies and may involve more concentrated positions, and are often less transparent than mutual funds. Given