Investment Companies and Fund Diversification

B

Investment companies often start numerous funds to attract many investors with different risk-return preferences, which increases the total capital managed by the investment company.

The correct answer is D. all of these answers.

Investment companies often start numerous funds to achieve multiple objectives, and all of the given options (A, B, and C) contribute to the reasons behind this practice. Let's explore each option in detail:

A. Justify investment in more securities: Starting numerous funds allows investment companies to justify investing in a larger number of securities. By creating multiple funds, they can allocate different portfolios to each fund, enabling them to invest in a diverse range of securities. This approach helps the company manage risk and potentially increase returns by spreading investments across various assets.

B. Attract many investors with different risk-return preferences: Investment companies aim to cater to a broad range of investors with varying risk-return preferences. By launching multiple funds, they can design each fund to target a specific risk level and return objective. Some investors may prefer conservative, low-risk investments, while others may be willing to take on higher risks for potentially greater returns. Offering a range of funds allows investment companies to attract investors with different risk appetites and investment goals.

C. Diversify the aggregate portfolio: Starting numerous funds allows investment companies to diversify their aggregate portfolio. Each fund can focus on a different investment strategy, asset class, or geographic region, which helps spread the investment risk. By diversifying across various funds, the investment company reduces the concentration of risk in any single fund. This diversification strategy is beneficial for both the investment company and its investors, as it aims to mitigate the potential impact of poor performance in one fund on the overall portfolio.

Therefore, all of the given options are valid reasons for investment companies to start numerous funds. These reasons collectively support the company's goals of investing in more securities, attracting a broader investor base, and diversifying the aggregate portfolio.