CC3152_L10_ch13+ - LECTURE 10 INVESTING IN MUTUAL FUNDS...

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CC3152 Principles of Financial Planning LECTURE 10 INVESTING IN MUTUAL FUNDS & REAL ESTATE
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2 INVESTORS pool their money and buy shares in the MUTUAL FUND. ABC MUTUAL FUND FUND MANAGER selects and purchases a variety of investment instruments. (I) Mutual Fund Basics [LG1,2]
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3 The Mutual Fund Concept
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4 Advantages of Mutual Funds ± Diversification —risk is lowered; one share buys a slice of everything in the fund. ± Professional management —pay someone else to make investing decisions. ± Financial returns —relatively attractive returns over the long term. ± Convenience —easy in and out, small outlays, help with record keeping.
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5 Disadvantages of Mutual Funds ± No choice in securities selection— if you don’t agree with choices, you must change funds. ± No control over sale of securities within fund—timing of sales has implications for investor.
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6 How Mutual Funds are Organized and Run ± Each fund is a separate corporation or trust and is owned by the shareholders. ± Other main players include: Management company runs the daily operations, usu. also serves as investment advisor; e.g. Fidelity, Jardine Fleming Investment advisor oversees portfolio Money manager: runs portfolio and makes buy and sell decisions Security analyst: look for attractive investments Traders: buy & sell big blocks of securities at best possible price Distributor sells fund shares, directly to public or through dealers (e.g. brokerage firm, commercial banks) Custodian physically safeguards fund’s assets independently Transfer agent executes transactions and maintains shareholder records
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7 ± Open-End Investment Companies (mutual funds) Dominant type of investment company Shares purchased from and sold back to company. Shares are not traded among individual investors. New shares issued as money flows in. No limit to the no. of shares issued. NAV is usually the quoted closing price. Types of Fund Companies
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8 Current value of all securities held in fund’s portfolio. Calculated at least once a day Represent the selling and buying price of a share in the open-end fund Net Asset Value (NAV) NAV = Current market price of all fund assets (Less any liabilities) Divided by the number of outstanding shares
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9 ± Closed-End Investment Companies Operate with a fixed number of shares outstanding and do not regularly issue new shares of stock . All trading is done between investors
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CC3152_L10_ch13+ - LECTURE 10 INVESTING IN MUTUAL FUNDS...

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