12-Mutual Funds

12-Mutual Funds - Mutual Funds Marriott School of...

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Mutual Funds Marriott School of Management Bus M 410 Winter 2011 Rob Schonlau Last updated Feb 26, 2011 1
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Lecture 12 Outline l Discuss types of investment companies. l Overview of mutual funds: Formation information Fees How they are sold Advantages and disadvantages l Discussion of other fund types 2
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Types of investment companies The Investment Company Act of 1940 classifies investment companies as either unit investment trusts or as managed investment companies . Managed investment companies include both closed- end and open-end funds. Commingled funds, real estate investment trusts, and hedge funds are not considered “investment companies” under this definition but are examples of other types of popular investment organizations. 3
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Unit investment trusts --see http://www.sec.gov/answers/uit.htm l Pools of money fixed for the life of the fund l Little active management l Often target specific classes of assets l Typically sponsored by a brokerage firm. The sponsor earns money by selling shares at a premium compared to the cost of buying underlying securities. l The public shares are called units or redeemable trust certificates l Investors that want to liquidate their positions sell the shares back to the sponsoring entity at net asset value 4
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Managed investment companies: open-end and closed-end Open-end Sold at net asset value (NAV) NAV changes when new shares are sold or old shares are redeemed Closed-end Sold at premium or discount to NAV Structure: Both open- and closed-end funds have a board of directors and a set of hired managers that manage the portfolio. Often the management company is the same as the sponsoring company. 5
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NAV The net asset value (NAV) is used as a basis for: Valuation of investment shares Selling new shares Redeeming existing shares Calculation of NAV: NAV = (market value of assets) – (liabilities) (shares outstanding) 6
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Closed-end funds Figure 4.1 You can look up current NAVs and prices for hundreds of closed-end funds from WSJ online 7
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closed-end Closed-end funds Fund companies issue a fixed number of shares You buy or sell shares on an exchange The funds usually trade at a discount of about 10% relative to NAV per share. 8
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This note was uploaded on 11/22/2011 for the course FINANCE BUS M 410 taught by Professor Robertschonlau during the Winter '11 term at BYU.

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12-Mutual Funds - Mutual Funds Marriott School of...

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