Series 7 practice questionmediumPackaged Products — Mutual Funds
Which feature allows a mutual fund investor to move money between funds within the same fund family at NAV without paying a new sales charge?
- AAutomatic reinvestment
- BDollar cost averaging
- CExchange privilege✓ Correct answer
- DSystematic withdrawal plan
Explanation
Why C — Exchange privilege
The exchange privilege (also called conversion privilege) allows investors to switch between funds within the same fund family at NAV, avoiding a new sales charge. However, for tax purposes, an exchange is treated as a sale of the old fund and a purchase of the new fund, creating a taxable event for any gains or losses.
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