Mutual Funds and Investment Companies
Services of Investment Companies
Types of Investment Companies
Types of Mutual Funds
Cost of Mutual funds
Return of Mutual Funds
Exchange Traded Funds
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Services of Investment Companies
Administration & record keeping
Diversification & divisibility
Professional management
Reduced transaction costs
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Net Asset Value
Used as a basis for valuation of
investment company shares
Selling new shares
Redeeming existing shares
NAV=
Market Value of Assets - Liabilities
Shares Outstanding
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Types of Investment Organizations
Unit Trusts
Managed Investment Companies
Open-End
Closed-End
Other investment organizations
Commingled funds
REITs
Hedge Funds
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Open-End and Closed-End Funds
Shares Outstanding
Closed-end: no change unless new stock
is offered
Open-end: changes when new shares are
sold or old shares are redeemed
Pricing
Open-end: Net Asset Value(NAV)
Closed-end: Premium or discount to NAV
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Investment Policies
Money Market
Equity
Specialized Sector
Bond
Balance & Income
Asset Allocation
Indexed
International
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Costs of Investing in Mutual Funds
Fee Structure
Front-end load
Back-end load
Operating expenses
12 b-1 charges
distribution costs paid by the fund
Alternative to a load
Fees and performance
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Example
An open-end fund has a total asset of
$120 million and a liability of $10 million.
It has 10 million shares outstanding.
What is its NAV? It is sold with a frontend load of 5%. What is its offering
price?
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Fund Returns
Page 106
A sophisticated example:
Problem 4.16 on page 121
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Table 4.2 Impacts of Costs on Investment Performance
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Exchange Traded Funds
ETF allow investors to trade index
portfolios like shares of stock
Examples - SPDRs and Webs
Potential advantages
Trade continuously
Lower taxes
Lower costs
Potential disadvantages
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First Look at Mutual Fund Performance
Average mutual fund performance is
generally less than broad market
performance
Over certain horizons there is
persistence in positive performance
Evidence is not conclusive
Some inconsistencies
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Figure 4.3 Diversified Equity Funds versus Wilshire 5000 Index
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Sources of Information on Mutual Funds
Wiesenberger’s Investment Companies
Morningstar (www.morningstar.com)
Yahoo (biz.yahoo.com / funds)
Investment Company Institute
(www.ici.org)
Popular press
Investment services
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