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Unformatted text preview: Chapter 8- Open-end (or mutual) funds: Funds that stand ready to sell new shares to the public and to redeem outstanding shares on demand at a price equal to an appropriate share of their portfolios value. - Net Asset Value (per share) : The ratio of the market value of the portfolio, less the mutual funds liabilities, divided by the total number of shares outstanding. - Close-ended fund : Fund that manages a pool of investments and that sells shares like any other corporation and usually does not redeem its shares, which trade on either an organized exchange or over the counter. - Investment Company Act of 1940 : A major piece of legislation regarding the operations and regulations of close-ended and mutual funds. Under it, close-ended funds can only be capitalized once at their IPO. - Exchange Traded Fund (ETF) : Essentially hybrid close-ended vehicles that trade on exchanges that typically trade very close to NAV- Unit Trust : In the United States, a pool of money invested in a specific and unchanging group of assets (usually bonds) over the planned life of the trust Key Points 1: Difference between open-ended and close-ended fund: Primarily has to do with how many shares there are while open-ended doesnt have fixed # of shares, close ended does. Because of this, there is a difference of whether the fund trades at NAV or not. Close-ended funds have high commissions because of the IPO and generally have been favored less in America Meaning of NAV per share: Pretty much what the definition says. With close-ended funds, shares will either be trading at a premium or trading at a discount. If the discount is tool large, a lifeboat provision may require the fund manager to repurchase some funds to increase the NAV Difference between close-ended fund and unit trust: First, there is no active trading of the portfolio of bonds in the unit trust generally the portfolio is just held by a trustee. Second, unit trusts have a fixed termination date. Last, the unit trust investor knows that the portfolio consists of a group of bonds and has no real concern that the trustee will alter the portfolio. The price of a close-ended fund trades different from NAV: see above- Investment Company Institute : The national associate for mutual funds Key Points 2: During the 1990s, households shifted into financial asses from tangible assets (like real estate), and into indirect ownership through mutual funds from direct ownership of stocks and bonds An important reason for the growth of the mutual fund industry in the 1990s was the growth of tax-deferred investing for retirement through defined contribution plans, IRAs and variable annuities....
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This note was uploaded on 01/27/2010 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.
- Spring '08