Lecture04 Mutual Funds - Mutual Funds Tyler R. Henry 1 FINA...

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Unformatted text preview: Mutual Funds Tyler R. Henry 1 FINA 4310 Outline Contents 1 Investment Companies 1 1.1 Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 Mutual Fund Styles 3 3 Fund Returns and Fees 5 3.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.2 Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.3 Prices and loads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4 8 1 Investment Companies Investment Companies Investment companies take the funds of a group of investors and pool them together to purchase (and manage) a portfolio of assets. Benefits of Investment Companies: • Diversification • Divisibility • Money management – active or passive? • Reduced transaction costs 1 Types of Investment Companies Unit Investment Trusts (UIT) • Uniform securities (Municipal bond funds) • 3% management fee for trustees Managed Investment Companies • Closed-end funds – exchange traded – premium or discount from NAV • Open-end funds ("Mutual funds") – issue new shares and redeem shares • Annual fee: 0.10% - 2% of assets 1.1 Mutual funds How are funds valued? Net Asset Value (NAV) NAV = MV of Assets- Liabilities Shares Outstanding • MV of Assets = market value of the assets in the portfolio • Liabilities are manager salaries, rent, and other administrative expenses Example : An open-end mutual fund has $140 million of assets under management. It has liabilities of $2.5 million, and there are 7 million shares outstanding. What is the funds NAV? Open-end and Closed-end funds: Key Differences Shares outstanding • Open-end: changes when old shares are redeemed or new shares are sold • Closed-end: no change unless new stock is offered Pricing • Open-end: NAV • Closed-end: market price, could be discount or premium to NAV 2 Mutual fund classification...
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This note was uploaded on 06/06/2011 for the course FINA 4310 taught by Professor Staff during the Spring '08 term at University of Georgia Athens.

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Lecture04 Mutual Funds - Mutual Funds Tyler R. Henry 1 FINA...

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