Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

Which type of contract allows an investor to pool funds into a single investment?

1. Variable annuity

2. Mutual fund

3. Unit investment trust

4. Real estate investment trust

The correct answer is: Mutual fund

A mutual fund is a type of investment vehicle that allows multiple investors to pool their money together to invest in a diversified portfolio of stocks, bonds, or other securities. This pooling of funds enables individual investors to access a broader range of investments than they might be able to afford or manage on their own. By investing in a mutual fund, investors benefit from professional management of their investments, diversification, and economies of scale. This structure is particularly advantageous because it lowers the overall risk for investors by spreading investments across various assets rather than relying on a single investment. Investors buy shares in the mutual fund, and the money is then professionally managed to meet the fund's investment objectives. Thus, the mutual fund's nature of pooling resources makes it a popular choice for those looking to diversify their investment portfolios effectively. The other options listed represent different types of investment contracts, but they do not focus primarily on pooling investor funds in the same manner as a mutual fund. For example, variable annuities are insurance products that also provide investment options, while unit investment trusts are typically structured with a fixed portfolio and have a set termination date, which does not emphasize pooling in the same way as mutual funds. Real estate investment trusts involve investing specifically in real estate-related assets but also