A redeemable security is a security that can be redeemed by the issuer at the investor’s request. Open end mutual funds are the most common example of redeemable securities. An investor who purchases an open end mutual fund must purchase the shares from the fund company and must redeem them to the fund company when the investor wants access to their money or wants to sell the shares.
Applying "Redeemable Security" to Securities Exams:
Redeemable securities are issued by open investment companies and by unit investment trusts or UITS. These investment companies are required to maintain the liquidity in the shares or units for investors. There is no secondary market trading in the securities. That is to say, investors do not purchase and sell the securities between themselves by executing orders on the floor of the NYSE or on NASDAQ. These securities are purchased directly from the issuer at the time the investor make the investment and are redeemed to the issuer when the investor is seeking to sell the securities. Investment companies must forward the proceeds of the redemption request within 7 calendar days. You are likely to see a number of questions regarding the operational aspects of investment companies on your exam. Be sure you have mastered all of this material by taking as many practice questions as you can in our exam prep software. All of our textbooks and video training classes will detail these concepts for you, so you know what to expect on test day. Pass your exam or your money back with our greenlight guarantee.