Ch23_Mutual Funds Overview

Ch23_Mutual Funds Overview - Chapter23 MutualFund:Overview...

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Financial Markets and Institutions Chapter 23 Mutual Fund: Overview
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Financial Markets and Institutions Background on Mutual Funds Mutual funds: Serve as a financial intermediary by pooling  investments by individual investors and using the  funds to accommodate financing needs by  governments and corporations in the primary market Investing
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Financial Markets and Institutions Background on Mutual Funds (cont’d) A mutual fund hires portfolio managers to invest  The board of directors: Monitors management Establishes procedures Ensures that the fund is properly serving its shareholders Under new SEC rules, a majority of board  members must be outsiders
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Financial Markets and Institutions Exhibit 23.1 Growth in Mutual Funds Note: The number shown here includes money market funds. Source: 2007 Mutual Fund Fact Book.
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Financial Markets and Institutions Types of funds Open-end funds: Are open to investment from investors at any time Allow investors to purchase or redeem shares at any  time Have a constantly changing number of shares Maintain some cash in case redemptions exceed  investments Consist of many different categories to satisfy investors’  investment needs Background on Mutual Funds (cont’d)
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Financial Markets and Institutions Types of funds (cont’d) Closed-end funds: Do not repurchase shares they sell Require investors to sell the shares on a stock exchange Have a constant number of outstanding shares Have an asset size that is about 1/40 th  of the asset size of  open-end funds Focus primarily on bonds and other debt securities Background on Mutual Funds (cont’d)
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Financial Markets and Institutions Types of funds (cont’d) Exchange-traded funds: Are designed to mimic particular stock indexes and are  traded on a stock exchange Differ from open-end funds in that their shares are traded on  an exchange, and their share price changes throughout the  day Consist of a fixed number of shares Are not actively managed Typically do not have capital gains and losses that must be  distributed to shareholders Background on Mutual Funds (cont’d)
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Financial Markets and Institutions Types of funds (cont’d) Hedge funds: Sell shares to wealthy individuals and financial institutions  and use the proceeds to invest in securities Differ from open-end funds because: – They require a much larger initial investment – They may not always accept additional investments or  accommodate redemption – They are unregulated and provide very limited information to  prospective investors They invest in a wide variety of investments to achieve high  returns Background on Mutual Funds (cont’d)
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Ch23_Mutual Funds Overview - Chapter23 MutualFund:Overview...

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