Advanced Diploma of Financial Planning (ADFP) Practice Test

What factor does NOT contribute to the appeal of mutual funds?

1. High minimum investment requirements

2. Diversification of investment options

3. Access to professional management

4. Flexibility in investment choices

The correct answer is: High minimum investment requirements

The appeal of mutual funds primarily lies in their ability to provide investors with diversified investment options, access to professional management, and flexibility in investment choices. High minimum investment requirements, however, tend to act as a barrier to entry rather than a factor contributing to their appeal. When examining mutual funds, diversification is one of their strongest selling points. By pooling money from multiple investors, mutual funds can invest in a broader array of securities compared to what an individual investor could typically achieve. This diversification helps to reduce risk, as it spreads the investment across various assets. Professional management also enhances the attractiveness of mutual funds, as many investors benefit from the expertise of experienced fund managers who make investment decisions on their behalf. This professional oversight can lead to better investment performance and strategy implementation. Flexibility in investment choices allows investors to select funds that align with their financial goals, risk tolerance, and investment horizons. This flexibility empowers investors to make choices that suit their individual needs. In contrast, high minimum investment requirements may deter potential investors, particularly those who are new to investing or who have limited capital to invest. Therefore, this factor does not contribute to the overall appeal of mutual funds, making it the correct answer.