Matching the Composition of the Market

D

They are funds that attempt to match a benchmark index of the market.

The correct answer is D. Market index funds.

Market index funds are designed to replicate the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. These funds aim to match the composition of the market by holding a diversified portfolio of securities that closely mirrors the index they are tracking. The holdings of the fund are selected in a way that reflects the securities and their weightings in the index.

The objective of market index funds is to provide investors with returns that closely track the performance of the chosen index. These funds are passively managed, meaning that the fund manager does not actively select securities or try to outperform the market. Instead, they aim to achieve returns that are similar to the index they are replicating.

By investing in market index funds, investors gain exposure to a broad market without the need for active stock selection or market timing. These funds offer diversification across a wide range of securities within the index, reducing the risk associated with investing in individual stocks.

Balanced funds (option A) are a type of mutual fund that holds a mix of stocks and bonds to provide a balance between growth and income. Their objective is to provide both capital appreciation and current income.

Growth funds (option B) are mutual funds that primarily invest in stocks of companies expected to experience above-average growth. These funds focus on capital appreciation rather than income generation.

Composite funds (option C) is not a common term in the context of investment funds. It is likely a distractor option and does not accurately describe a specific type of fund.

In summary, market index funds (option D) are designed to match the composition of the market by replicating the performance of a specific market index. They provide investors with a passive investment strategy that aims to closely track the returns of the chosen index.