Each individual mutual fund hires an investment advisor,generally from the management company,who oversee the particular fund.How is this advisor paid?
A)Hourly
B)Based on a percentage of the commissions charged on an annual basis
C)Based on a percentage of the total value of the fund on an annual basis
D)Annually based on the capital gains realized by the fund
E)None of the above

Question

Quizplus · Accepted Answer

Investment advisors for mutual funds are typically compensated based on a percentage of the total value of the fund on an annual basis. This incentivizes them to make smart investment decisions that will benefit the fund over the long term, as they will benefit financially from its growth. Hourly compensation is uncommon and would not provide enough incentive for the advisor to work to grow the fund, while paying based on commissions or capital gains realized by the fund could create conflicts of interest.

Each Individual Mutual Fund Hires an Investment Advisor,generally from the Management