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Mutual Fund Companies

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Mutual Fund Companies

by rohitacmilan » Fri Nov 01, 2013 10:06 pm
The proposal requiring mutual fund companies to set aside a part of their fee for investor education is laudable, but meaningless. The challenge actually lies in finding the right ways of educating investors and making them financially literate.

Which of the following, if true most strongly supports the argument?

(A) People looking to invest in mutual funds currently lack the knowledge to make informed decisions.
(B) Most mutual funds have accumulated large reserves of cash for investor education.
(C) Investing in mutual funds is very different from investing in other financial instruments such as shares and debentures.
(D) Financially literate customers, on the whole, provide more business to mutual fund companies than do financially ignorant ones.
(E) Activities aimed at educating customers cost a lot of money and most mutual funds do not have the cash reserves to conduct such activities.

Original Answer: Option B

Please explain how I should approach this question.

Source: Aristotle Prep CR Grail (New Edition) Question# 55
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by theCodeToGMAT » Fri Nov 01, 2013 11:08 pm
The last line of the Premises is playing an important role

"The challenge actually lies in finding the right ways of educating investors and making them financially literate"

This shows that finding right ways is the challenge.

{B} - Most mutual funds have accumulated large reserves of cash for investor education. --> This shows that funds have accumulated but probably not used as rights ways are not known.
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by rohitacmilan » Sat Nov 02, 2013 6:33 am
@theCodeToGMAT,

Proposal to set aside a part of their fees for educating investor -> does this point imply that MF companies already have a huge cash reserve? In fact, My understanding is that they probably do not have enough cash and hence the proposal to raise cash to start this investor education initiative.

In fact I thought Option C is correct.
Finding right ways can be challenge if the investing in mutual funds is very different from investing in shares and debentures. That means a completely new set of knowledge is required. Hence the usual investor education session might not be adequate. Hence there is a need to find an alternate method to educate the investor. Finding an alternate way can be a big challenge to the mutual fund companies.

Correct me if I am wrong.
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by theCodeToGMAT » Sat Nov 02, 2013 9:14 am
rohitacmilan wrote:@theCodeToGMAT,
Proposal to set aside a part of their fees for educating investor -> does this point imply that MF companies already have a huge cash reserve? In fact, My understanding is that they probably do not have enough cash and hence the proposal to raise cash to start this investor education initiative.
You are completely neglecting the word "meaningless".. each word is important in CR... what if the author means to say that they have so much money available that keeping aside the part of fee for investors is meaningless.
rohitacmilan wrote: In fact I thought Option C is correct.
Finding right ways can be challenge if the investing in mutual funds is very different from investing in shares and debentures. That means a completely new set of knowledge is required. Hence the usual investor education session might not be adequate. Hence there is a need to find an alternate method to educate the investor. Finding an alternate way can be a big challenge to the mutual fund companies.
Correct me if I am wrong.
I would say option C is completely out of domain of the premise.. Here, we are not told anything about the strength of investors in Shares & Debentures.
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by rohitacmilan » Sat Nov 02, 2013 10:31 am
@TheCodeToGMAT,

Nowhere is there a indication that MF companies have huge reserves of cash to conduct such investor education workshops. I have considered the word MEANINGLESS. The exercise of putting aside a part of fees for conducting training workshops can prove to be meaningless if the usual classroom program is not the most effective way to educate the investors.

The MF company can have plenty of cash but still their proposal to conduct workshops for investors can be meaningless if the workshops do not really offer any real value to the investors. What if the investor is better off with a online simulation game with virtual units of the MF. That mode of educating investor might be just more effective than usual classroom training session. Hence the second sentence states that the real challenge is not the money but the finding an effective medium of education.

MEANINGLESS - if the usual training methods proposed are not going to help, may be the nature of training required to be adept in MF transactions are very different from shares and debentures (OPTION C)

CHALLENGING - to find alternative ways to educate investors.

Please let me know
- if the stimulus/question stem/options are poorly worded?
- difficulty level of this questions?

Thank you.

Regards,
Rohit
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by David@VeritasPrep » Sun Nov 03, 2013 4:46 pm
This is not a good question -- in my opinion. B is given as the official answer. B would not be the correct answer to an official GMAT question. In fact, it does not make sense. Why would the mutual funds have large reserves of cash for education? Mutual funds are not particularly interested in educating investors or else they would not have these large reserves of cash that are not spent.

I understand what the question is trying to say. I understand that B is meant to be the answer. But it does not work. C also does not work. I appreciate that everyone is trying to make an answer choice work here but I think that it is better to leave this one. Again in my opinion.
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by pareekbharat86 » Sat Nov 09, 2013 4:37 am
David@VeritasPrep wrote:This is not a good question -- in my opinion. B is given as the official answer. B would not be the correct answer to an official GMAT question. In fact, it does not make sense. Why would the mutual funds have large reserves of cash for education? Mutual funds are not particularly interested in educating investors or else they would not have these large reserves of cash that are not spent.

I understand what the question is trying to say. I understand that B is meant to be the answer. But it does not work. C also does not work. I appreciate that everyone is trying to make an answer choice work here but I think that it is better to leave this one. Again in my opinion.
Thanks for your intervention. The OA and the conversation above made my confidence dip to a whole new low level!
Thanks,
Bharat.
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