Products & Their RisksQuestion 112 of 398
Under the 75-5-10 test, a mutual fund may call itself 'diversified' if, with 75% of its assets, it invests no more than:
a.10% of assets in any one issuer and owns up to 5% of an issuer's voting stock
b.5% of assets in any one issuer and owns no more than 10% of an issuer's voting stock
c.25% of assets in any one issuer with no voting-stock limit
d.50% of assets in government securities only
Explanation
To be labeled diversified under the Investment Company Act of 1940, at least 75% of a fund's assets must be invested so that no more than 5% is in any single issuer and the fund owns no more than 10% of any issuer's voting securities. The remaining 25% is unrestricted, giving the fund some concentration flexibility.
Law Reference: Investment Company Act of 1940Practice all 398 questions free — no signup required.
Related questions on this topic
- Under the forward pricing rule, an order to buy or redeem open-end mutual fund shares is executed at:
- A 12b-1 fee charged by a mutual fund is used to cover:
- A mutual fund's expense ratio measures:
- A retail money market mutual fund generally seeks to maintain a stable net asset value of:
- An investor is concerned that rising interest rates will reduce the value of a fund's holdings. This concern is most relevant to which fund?
- A sector fund that invests almost entirely in technology companies primarily exposes investors to:
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Securities Industry Essentials (SIE) Exam · How we review