Liquidity is important to a mutual fund primarily because:

Question

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Liquidity is important to a mutual fund primarily because the fund's shareholders may want to redeem their shares at any time. Mutual funds allow investors to redeem their shares on a daily basis, and if the fund is illiquid and unable to meet redemption requests, it could result in a panic selloff or a drop in the fund's net asset value. Therefore, mutual funds need to maintain a certain level of liquidity to facilitate shareholder redemptions.

Liquidity Is Important to a Mutual Fund Primarily Because