fin401- new material book notes

fin401- new material book notes - 4- Mutual Funds and Other...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 4- Mutual Funds and Other Investment Companies03:08Investment CompaniesInvestment companies- financial intermediaries that collect funds from individual investors and invest them in a potentially wide range of securities or other assetsFunctionsRecord Keeping and administrationDiversification and divisibilityProfessional managementLower transaction costsInvestors buy shares in investment companies, and ownership is proportional to the number of shares purchasedNet asset value (NAV)- the value of each share= (mv assets mv liabilities) / shares outstandingTypes of Investment CompaniesClassified under the Investment Company Act of 1940 as either unit investment trusts or managed investment companiesUnit Investment TrustsMoney pooled from many investors that is invested in a portfolio fixed for the life of the fundTo form it a sponsor, typically a brokerage firm, buys a portfolio of securities which are deposited into a trustIt then sells to the public shares in the trust, called redeemable trust certificatesAll income and pmts of principal are paid out by the trustees to the shareholdersUnmanagedTend to invest in relatively uniform types of assetsSponsors earn profits by selling shares at a premium to the cost of acquiring themInvestors can sell shares back to trustee for NAVLost market share to mutual funds in recent yearsManaged Investment CompaniesBoard of directors hires a mgt company to manage the portfolio for a annual feeClosed EndShares may not be redeemed, but instead are traded at prices that can differ from NAVOpen endA fund that issues or redeems its shares at NAVMutual fundsPremium or discount = (price NAV) / NAVOn avg fund premiums or discounts tend to dissipate over time, so funds selling at a discount receive a boost to their rate or return as the discount shrinksWhile many closed end funds sell at a discount from NAV, the prices of these funds when originally issued are often above NAVThe price of open end funds cannot fall below NAVHowever the offering price will exceed NAV if the fund carries a loadLoad- a sales charge paid to the sellerOpen end mutual funds do not trade on organized exchanges, where closed end funds doOther Investment OrganizationsCommingled FundsPartnerships of investors that pool their fundsThe management firm manages the funds for a feeSimilar to open end mutual funds. Instead of shares, though, the fund offers units, which are bought or sold at NAVA bank or insurance company may offer an array of these, for example a money market fund, bond fund, and common stock fundReal Estate Investment Trusts (REITs)Similar to a closed end fund...
View Full Document

This note was uploaded on 12/10/2011 for the course FIN 401 taught by Professor Staff during the Spring '08 term at Miami University.

Page1 / 33

fin401- new material book notes - 4- Mutual Funds and Other...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online