An investor is considering two fund options: a closed-end fund and an open-end mutual fund. If the investor prioritizes liquidity and the ability to redeem their investment at the fund's fair value (NAV) directly from the fund company, which option is generally more suitable?

Question: An investor is considering two fund options: a closed-end fund and an open-end mutual fund. If the investor prioritizes liquidity and the ability to redeem their investment at the fund's fair value (NAV) directly from the fund company, which option is generally more suitable?

Answer options:

• The closed-end fund, as its shares are bought and sold through the fund manager. ✅ The open-end mutual fund, as shares are continuously redeemed by the fund at NAV.
• Both funds offer equal opportunities for redemption at NAV.
• Neither fund offers direct redemption at NAV; all sales are market-based.

Correct answer: The open-end mutual fund, as shares are continuously redeemed by the fund at NAV.

Explanation: Open-end mutual funds continuously offer and redeem units at the fund's calculated Net Asset Value (NAV) at the end of the trading day, providing investors with direct liquidity at fair value. Closed-end funds, conversely, trade on exchanges, and their market price can deviate from NAV.