07 - Lecture 7 BM Ch 6; TJHM Ch 9; CCH Ch 9; Day et al Ch...

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1 BM Ch 6; TJHM Ch 9; CCH Ch 9; Day et al Ch 18 Lecture 7 ` General name for arrangements where monies are pooled and assets traded for a common purpose (to generate financial benefit) ` Difference in types of MIS comes down to the legal (and importantly the taxation) framework in which they operate ` For practical purposes three categories: unit ` All receive monies from investors and apply these to the purchase of investment assets 2 ` Chapter 5C Corporations Act ` Managed in accordance with scheme Constitution – ‘rules’ for managing assets ` Beneficial ownership arrangement – managers ‘own’ assets held on behalf of investors who have ultimate right to assets ` Often a ‘Custodian’ is involved (NTA rule) ` Offered to investors via a Product Disclosure Statement (‘offer document’) 3
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` Unit trusts – equity, mortgage, property, cash management, fixed interest, international ` Insurance (investment) bonds / Friendly Society bonds ` Superannuation, rollover funds ` Listed investment companies ` Exchange traded funds ` Agricultural schemes ` Master trust and wrap accounts / IDPS 4 ` Investors pool their funds to enable manager to purchase assets ` Responsible Entity operational, investment management responsibilities can appoint others to undertake certain functions ` Investors don’t make investment decisions share returns, risks ` Rules, regulations exist which state each party’s responsibilities and rights ` Usually have a long term focus ` Active or Passive management (indexing) 5 ` Investor (unit holder) ` Management company (‘Responsible Entity’) ` May be a promoter (Fund Manager) ` Often a financial planner is involved ` There may be a separate administration company ` There may be a separate custodian ` External auditor 6
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` Governed by Chapter 5C Corporations Act 2001 ` ASIC – Regulator for ‘MIS’ ` APRA – Also regulates superannuation funds and insurance companies ` Registered schemes must be run by a body corporate and operate under AFSL ` Not all schemes are registered – buyer beware! 7 ` Professional management by experienced personnel ` Pooling of funds provides economies of scale early entry for small investors, specialised sectors, capital- intensive investments, enhanced ability to diversify ` Simplification of administrative functions ` Regulatory oversight and monitoring by ASIC, APRA ` Periodic investments (dollar cost averaging) ` Allow switching, transferring, redemption (fees) ` Fees known up front (percentages, not dollars) ` Assessment of funds by ratings agencies 8 ` Direct payment of dividends, income ` Fund managers often receive discounted brokerage rates, which are spread amongst investors ` Investor reports prepared, tax collated ` Published reports on fund performance are relatively easy to compare; investment research time reduced ` Some (listed) funds & ETFs may be more liquid than direct investments 9
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This note was uploaded on 12/06/2011 for the course ECON 101 taught by Professor Shen during the Three '11 term at Monash.

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07 - Lecture 7 BM Ch 6; TJHM Ch 9; CCH Ch 9; Day et al Ch...

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