ECONOMICS (CBSE/UGC NET)

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ECONOMICS

SAVING AND INVESTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Michael began saving for his daughter Tamara’s college education the year she was born. Initially he invested most of his money in mutual funds. Now that Tamara is fifteen and college is two years away, he has moved most of his money to bonds. Which reason BEST explains why he changed his investment?
A
to reduce risk
B
to reduce taxes
C
to increase liquidity
D
to increase return
Explanation: 

Detailed explanation-1: -What types of mutual funds are there? Most mutual funds fall into one of four main categories – money market funds, bond funds, stock funds, and target date funds. Each type has different features, risks, and rewards.

Detailed explanation-2: -Liquid Fund The objective of these schemes is to ensure liquidity, capital protection, and reasonable income in the short-term. Most of the pooled fund is invested in short-term safe instruments like government securities, treasury bills, certificates of deposit, commercial paper, and inter-bank call money.

Detailed explanation-3: -Point-to-Point or Absolute Returns. Simple Annualised Return. Simple Annualised Return: [(1 + Absolute Rate of Return) ^ (365/number of days)] – 1. Compounded Annual Growth Rate (CAGR) = [(Present NAV / Initial NAV) ^ (1 / number of years)] −1 × 100. More items

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