Which statements are true about equity funds? Check all that apply: Each fund has a specified...
Which statements are true about equity funds?
Check all that apply:
Each fund has a specified investment policy, described in the fund's prospectus.
Growth funds are typically riskier than income funds.
They commonly hold about 5% of total assets in money market securities.
They invest primarily in private equity.
Homework Answers
Statement 1: This is correct.
Statement 2: This is correct
Explanation
In case of an income fund, the fund provides dividend earnings (of
the firms in which a fund manager invests money) to the investors.
Normally, more mature companies pay dividends. So, here the fund
manager invests money in mature companies which are less risky.
Dividends generate lots of cash and these are paid to the
investors. So, income funds are less riskier than growth
funds.
On the other hand, growth funds normally give good returns by
investing in high risk young companies. Hence, it is riskier than
income funds.
Statement 3: This is incorrect because there is no such fixed
percentage of 5%. Equity funds might not invest in money market
securities at all.
Statement 4: This is incorrect because, they invest mostly in
publicly traded companies.
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