General Securities Representative (Series 7) Practice Exam

When mutual fund shares are redeemed, what is deducted from their net asset value?

1. Management fee

2. Transaction fee

3. Redemption fee

4. Account maintenance fee

The correct answer is: Redemption fee

When mutual fund shares are redeemed, the correct deduction from their net asset value is the redemption fee. A redemption fee is a charge imposed by a mutual fund when investors redeem their shares. This fee is intended to discourage short-term trading and to help offset the costs incurred by the fund, such as the trading costs associated with selling securities to meet redemption requests. This fee is calculated as a percentage of the amount being redeemed and is typically deducted directly from the net asset value of the mutual fund shares at the time of redemption. The remaining proceeds are then returned to the investor after the redemption fee has been applied. While management fees, transaction fees, and account maintenance fees are other potential charges associated with mutual fund investments, they do not directly impact the net asset value upon share redemption. Management fees are usually assessed on an ongoing basis and are reflected in the fund's performance, while transaction and account maintenance fees may apply under different circumstances, but they do not directly affect the process of redeeming mutual fund shares at that specific point in time.