Multiple choice

A person who purchases debentures issued by a company is a lender to the company. An income fund invests in debentures issued by a company. A unit holder of this income fund

  1. is a lender to the company

  2. is a share holder in that company

  3. has no relationship to that company

  4. is a creditor to that company?
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The unit holder owns units in the mutual fund, not the underlying securities. The mutual fund is the legal owner of the debentures and has the creditor relationship with the company. The unit holder's relationship is with the mutual fund (trustee), not with the companies whose securities the fund holds. This separation of ownership is a key feature of mutual fund structure.

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