Which type of pooled investment vehicle generally has the lowest level of fees and costs?

Which type of pooled investment vehicle generally has the lowest level of fees and costs?

• A. Closed-end mutual funds
• B. Actively managed open-end mutual funds
• C. Passively managed open-end mutual funds
• D. Hedge funds

Answer: (C)

The correct answer is that passively managed open-end mutual funds typically have the lowest level of fees and costs compared to other types of pooled investment vehicles. This can be attributed to several key factors inherent in their management style and operational structure. Passively managed open-end mutual funds aim to replicate the performance of a specific index, such as the S&P 500, rather than trying to outperform it through active trading and research. This passive management approach requires significantly less trading activity and research effort, which translates into lower management fees. Additionally, these funds do not incur high costs related to active portfolio management strategies, such as frequent trading or hiring analysts. In contrast, actively managed open-end mutual funds tend to charge higher fees because they employ managers and analysts to make investment decisions with the goal of beating the market. This results in higher operational costs, which are ultimately passed on to the investors through elevated expense ratios. Closed-end mutual funds may also have various costs associated with their operation and trading mechanisms, including commissions and potential discounts or premiums on their market prices compared to their net asset value. Hedge funds usually charge substantial management and performance fees due to their active investment strategies and higher complexity in their investment approaches. Overall, the streamlined and less resource-intensive management of passively

The correct answer is that passively managed open-end mutual funds typically have the lowest level of fees and costs compared to other types of pooled investment vehicles. This can be attributed to several key factors inherent in their management style and operational structure.

Passively managed open-end mutual funds aim to replicate the performance of a specific index, such as the S&P 500, rather than trying to outperform it through active trading and research. This passive management approach requires significantly less trading activity and research effort, which translates into lower management fees. Additionally, these funds do not incur high costs related to active portfolio management strategies, such as frequent trading or hiring analysts.

In contrast, actively managed open-end mutual funds tend to charge higher fees because they employ managers and analysts to make investment decisions with the goal of beating the market. This results in higher operational costs, which are ultimately passed on to the investors through elevated expense ratios.

Closed-end mutual funds may also have various costs associated with their operation and trading mechanisms, including commissions and potential discounts or premiums on their market prices compared to their net asset value. Hedge funds usually charge substantial management and performance fees due to their active investment strategies and higher complexity in their investment approaches.

Overall, the streamlined and less resource-intensive management of passively