Organization and management organizational form o

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Are extra cost of managed funds worthwhile? Organization and Management Organizational Form- o Mutual fund is a joint-stock company owned by shareholders o Shareholders pay management company a fee Management companies- o Management company take initiative in setting up mutual fund Managing Risk and Liquidity- o Risk passed on directly to shareholders Other Functions- o Contracts with custodian, transfer agent, and principal underwriter Types of Mutual Fund Open-end and closed-end funds- o Open end funds dominate US o Limitations Open end: must be liquid Close end: shares trade at discount below net asset value Exchange- Traded Funds (ETFs) o Index fund that trades on exchange o Adv. Over open end funds- prices are continuously available rather than only at the end of the day, Investors can move in and out The importance of Distribution 2 methods of distribution 10/7/2019 13
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o Loan and no loan funds Sell mutual funds through network of agents o Mutual fund “supermarkets” An investor with an account can choose among hundreds of funds o Online Distribution o The importance of service- Quality of service can attract and keep investors o The Importance of track record- Earning higher returns- more investors Economies of Scale- PAGE 296 Consolidation- Increase size through mergers The Regulation of Mutual Funds- Far less regulated than pension funds MF is exempt from federal corporate income tax if it distributes 90% of its taxable income to shareholders o Makes it to where a MF must be diversified (holds no more than 10% of the stock of one company) Hedge Funds Result of regulation is to limit the investment strategies open to mutual funds- way around it o Set up investment company this is not legally investment company o Set up investment company offshore o THESE ARE KNOWN AS HEDGE FUNDS o Disadv. Of hedge funds is poor liquidity Mutual funds today- The recent surge in mutual fund growth in the us- Mutual funds in other countries- 10/7/2019 14
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  • Fall '19
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