Untitled2_26 - 24 Principles of banking and finance...

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Investment intermediaries Investment intermediaries comprise mutual funds, finance companies, investment banks and securities firms. Mutual funds Mutual funds pool resources from many individuals and companies and invest these resources in diversified portfolios of bonds, stocks and money market instruments. An open-ended mutual fund (the major type of mutual fund) continuously allows shareholders to sell (redeem) outstanding share, and investors to buy new shares at any time. The value of these shares is determined by the value of the mutual fund’s holding assets. Two main advantages characterise mutual funds. First, mutual funds provide opportunities to small investors to invest in financial securities and diversify risk. Second, mutual funds take advantage of lower transaction costs when they buy larger blocks of financial securities. There are two segments in the mutual fund industry: long-term funds and short-term funds. Long-term funds comprise bond funds (funds that contain
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